38 mins agoOPINION: Overseas wars put affordability on hold, but that’s only temporary
This is an excerpt from an opinion article by E.J. Antoni, Ph.D., Chief Economist and the Richard F. Aster fellow at the Heritage Foundation.
American families aren’t imagining it: we’ve had affordability problems since at least 2022. The situation was improving markedly throughout last year, right up until this February, but overseas conflicts reversed some of that progress. Once the wars with Iran and in Ukraine conclude, affordability will start to improve again.
The cost-of-living crisis started during the Biden administration when prices rose so much faster than earnings that people’s paychecks shrunk in terms of their purchasing power. Although the average American’s weekly paycheck grew roughly 17% during President Joe Biden’s term, it bought about 4% less.
For many families, that meant canceling vacation plans or being unable to buy a newer vehicle. For others, it meant having to put some necessities — like rent, prescriptions and food — on credit cards. Even when inflation came down, families were still facing high costs since inflation is the rate of price increases, not the prices themselves.
To add insult to injury, 40-year-high inflation prompted the fastest rise in interest rates in just as long. Not only did prices rise rapidly, but so did borrowing costs. That was a deadly one-two punch for homeownership affordability as higher home prices and mortgage interest rates combined to double the monthly payment on a median-priced home in just four years.
But affordability was improving after January 2025. Real (inflation-adjusted) weekly paychecks rose roughly 2% on average from January 2025 through February of this year. While not a windfall, it was still good progress and reversed half the cumulative losses from the Biden years as income growth outpaced inflation.
Tax and regulatory reform, along with sound energy policy, were spurring economic activity and wage growth while keeping inflation down. Then the Iran war broke out. Global energy markets specifically and supply chains broadly were severely disrupted, causing costs to skyrocket.
Oil prices quickly rose from $60 or $70 per barrel, depending on the market, to $100 or $120. Prices at the pump soon followed, but the energy shock is spilling over to more sectors of the economy with each passing day.