CNN invited me on-air on September 28 to discuss record-high diesel prices, high costs for everything else, and the outlook for housing with mortgage rates at 7%. Here’s the clip. Takeaways follow, including a brief look at the history of mortgage rates and how we compare now.
Statement of the obvious to say gas and diesel prices are way too high and it’s a disastrous outcome of Trump’s war with Iran. A more competent president would have anticipated this.
Nobody needs to tell Americans how much extra it costs to fill up their tank. Before the war, a 15-gallon fill-up cost $45. Now it costs $68. So far, pricier gasoline has cost the typical household more than $500, according to the Watson Institute at Brown University.
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Most people don’t buy diesel, which makes it harder to gauge the cost crunch for a typical family. But record high diesel prices raise the cost of planting, harvesting, and transporting food, and shipping most consumer products. Higher diesel prices have cost the typical household another $412, according to the Watson Institute. Total cost of the Iran war: $915 per household, and counting.
Interest rates are rising for a variety of reasons, with the average mortgage rate now above 7%. How painful is that? Let’s look at the history of mortgage rates.
A 7% mortgage rate isn’t unusual. In fact, it’s close to the historical average, if you go back decades. What has been unusual is the last 18 years, with rates much lower than usual, largely thanks to Federal Reserve monetary stimulus measures that began with the Great Recession in 2008.
So we’re now reverting to more normal interest rate levels. But this is happening with home prices that are unusually high.
When mortgage rates fall, home prices tend to rise, since cheaper mortgages boost demand and that sends prices higher. There was a dramatic jump in prices during the Covid pandemic that started in 2020, mainly because the Fed slashed interest rates to record lows. You can see the dynamic in both charts, starting in 2020: Rates plunge, prices soar.
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As mortgage rates have been rising, home prices have begun to drop—a little. But the market is still way out of whack and is likely to stay that way for a while. The biggest problem is there’s not enough lower-priced housing. Local zoning rules and other regulations make it hard to build. Developers would rather build mansions with high profit margins than entry-level homes or multifamily units.
Trump’s policies have made the housing problem worse. His tariffs have raised the cost of lumber and other building materials at a time when homes are already pricey. His deportation policies have thinned out the construction workforce and pushed labor costs higher. Congress passed a law over the summer meant to create incentives for more affordable housing, which might help. But it will take years.
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The Pinpoint Press has been arguing that it’s time to rethink the American Dream. Home ownership has been the main way ordinary families built wealth for decades. But there are other ways to get ahead. Shrewd investing is easier than ever, with low transaction costs. You can start an investment account with a couple hundred dollars. Financial investments carry risk, but that declines the longer your time horizon. And you can invest in ways that limit your risk to whatever you’re comfortable with.
The amount of financial wealth in the United States now exceeds the amount of real-estate wealth. The richest Americans own most of those financial assets—but there’s no rule that says only the wealthy can own stocks and other assets. If you think owning a home is the simplest or fastest way to build wealth, you might be missing out.
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