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The Rising Cost of Mortgages and Gasoline

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Andrew R. Michaud

• August 08, 2023

The combined costs of a new 30-year fixed-rate mortgage and a gallon of gasoline have recently reached their highest point in over two decades, as reported by Bespoke Investment Group. This unsettling trend marks two major "pain points" for American consumers, both of which have reached levels not seen in more than 20 years.

According to the chart provided by Bespoke, the average new 30-year fixed-rate mortgage currently stands at 7.38% as of last week. In addition, the national average price for a gallon of regular unleaded gas is $3.83. These figures indicate that consumers are now paying more for both home loans and gasoline compared to the past two years. This surge comes as U.S. inflation peaked and pandemic supply chains were being unraveled. Interestingly, these costs are even higher than they were in the aftermath of the 2007-2008 global financial crisis, during which credit froze.

However, it is important to note that consumer cost measures depend on the specific averages being tracked. Although rates on 30-year mortgages have often exceeded 7% in 2023, Freddie Mac reports a slightly lower weekly average rate of 6.9% as of August 3. The fluctuation can be attributed to the close relationship between the 30-year mortgage rate and long-term Treasury yields, which have been volatile throughout August.

Furthermore, as mentioned by Aarthi Swaminathan in July, only a small fraction of U.S. mortgages have an interest rate above 6%. This indicates that very few homeowners would find it financially advantageous to refinance their mortgages given the current high rates.

Overall, these escalating costs in the housing and energy sectors have created significant financial challenges for American consumers, reaching levels not witnessed in over two decades. As the situation continues to evolve, it remains to be seen how individuals and families will navigate this costly landscape.

Economic Factors Impacting U.S. Homeowners

The Federal Reserve's rapid rate hikes since 2022 have had minimal effect on many U.S. homeowners due to still-elevated home prices and fixed mortgage costs. This insulation provides a cushion against the worst impacts of these rate increases.

Rising Gas Prices: Factors at Play

Gas prices in the United States have been steadily increasing over the past month, with the national average pegged at $3.829 per gallon, according to AAA. This marks a notable increase from the average price of $3.537 per gallon just one month ago.

Various factors have contributed to this upward trend in gas prices. Firstly, Saudi Arabia's decision to continue with production cuts has had an impact. Additionally, refinery outages, some of which were caused by extreme heat conditions, have also contributed to the price increase.

It is worth noting that there is a general rule of thumb in the industry: for every $10 rise in the price of a barrel of crude oil, there is an approximate increase of 25 cents in the average U.S. gasoline price at the pump.

Oil Market Update

The global benchmark Brent crude (BRN00) experienced a slight decline of about 1% on Monday, reaching a price of $85.57 per barrel. Similarly, West Texas Intermediate crude (CL00, CL.1) decreased by approximately 1% as well, settling at $82.13 per barrel.

Stock Market Continues to Climb

Despite slight tumult last week when Fitch Ratings downgraded its top credit ratings for U.S. debt, stock markets are on an upward trajectory. The Dow Jones Industrial Average (DJIA) experienced a 1% increase, while the S&P 500 index (SPX) rose by 0.7%. The Nasdaq Composite Index (COMP) also saw a modest increase of 0.2%, according to FactSet data.