PHOENIX (AZFamily) — Inflation is up again, with the Consumer Price Index rising to 3.7% this week, driven in large part by the conflict in the Middle East and rising energy and gas prices.
But in Arizona, housing is hitting wallets hardest, according to Sean Ewen, research economist with the Seidman Research Institute at Arizona State University.
Ewen says housing costs are up 40% to 50% since the COVID-19 pandemic, among the largest increases nationwide. After the Federal Reserve raised interest rates to 4% in February, 30-year fixed mortgages are holding around 7.4%.
“The general thought is higher interest rates will cool demand, which will in turn cool housing prices,” he said.
Ewen says higher rates should eventually bring down home prices, but the pass-through to mortgages happens faster than the drop in sale prices. When rates come down, prices should cool; it’s just a question of when.
Groceries, gasoline and new cars are also climbing, raising questions about whether Arizona paychecks are keeping up.
Arizona’s median household income is around $85,000, Ewen said, and has largely kept pace with inflation, including for workers at the 25th and even 10th percentiles.
“We do see quite a bit of increase in wages at the same time, maybe not as much as they otherwise would have without the inflation,” he said.
Still, he acknowledged raises and new jobs don’t stretch as far as they used to.
“Maybe you finally get that raise, or you finally get that new job and the salary doesn’t go quite as far as you expected it to. That’s disappointing,” he explained.
Despite high prices and rates, Ewen says the U.S. is not in a recession, and he does not like predicting one. He pointed to a saying from former Fed Chair Ben Bernanke that economic expansions “don’t die of old age, they’re murdered.”
“Recessions don’t just happen out of the blue; something causes them,” Ewen explained. “In 2020 it was COVID, in 2008 the financial crisis, in 2000-2001 the dot-com bubble. Those things are hard to predict.”
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