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Housing prices soar with rising inflation

SCOTT SIMON, HOST:

We found out this week that inflation has hit a new 40-year high. Consumer prices in May were up 8.6 from a year ago - the largest increase since December 1981. The price of gas has hit $5 a gallon nationwide, according to AAA. The cost of virtually everything else also continuing to rise - groceries, renting a home and certainly buying a home. We're joined now by NPR correspondent Chris Arnold. Chris, thanks for being with us.

CHRIS ARNOLD, BYLINE: Hey, Scott. Absolutely.

SIMON: The Federal Reserve has been raising interest rates to try to cool off inflation - doesn't seem to be working just yet.

ARNOLD: That's right. Many economists were hoping inflation had already peaked, but apparently not. And look - the war in Ukraine is clearly playing a role. It pushes the price of gas up, which you mentioned - also grain and fertilizer prices, which pushes up the price of food. Also, there's other things, too, though. I talked to a guy who works in the hardwood lumber business outside of Los Angeles. His name is James Hill, and he sells plywood and wood veneers.

JAMES HILL: A lot of the white oak was coming from Ukraine. We saw, man, prices go from $125 a sheet to $200-plus over the past few months.

ARNOLD: And that's for a type of plywood veneer that's used to make furniture. There's also probably ongoing supply chain disruptions related to the pandemic that are playing a role. So yesterday, these inflation numbers came out. It showed that just about everything is going up in price. That spooked the market. The Dow fell 900 points. We should also say, though, Scott, that it does tend to take a while for the Fed - historically, when it's tried to do these rate hikes, for that to have an impact and cool off inflation.

SIMON: And inflation affects home prices, too, doesn't it?

ARNOLD: Absolutely. And as the Fed is raising rates, that's pushing mortgage rates higher on top of already high home prices. And especially during the pandemic, people wanted more space, and interest rates were super low. So home prices were hitting new records, and they went up 30- to 40% nationally - in some places, even more - over the past couple of years. I talked to Nick Sanchez, who's a steamfitter and lives in Tuckahoe, N.Y. He's got a 2-year-old kid, and he and his wife have been looking to buy a place for the past year.

NICK SANCHEZ: We hit the open house circuit every weekend, every other weekend, going to these open houses where there's 30 other families on a Saturday afternoon looking at something, again, that's half a million dollars and that needs a full gut renovation. It's extremely frustrating.

ARNOLD: That was even before interest rates really, really started rising.

SIMON: Chris, can we say how much are those rates pushing up the price of a home?

ARNOLD: Yeah. I mean, the math here, Scott, is pretty eye-popping. I mean, so rates were around 3%. They've gone up to more than 5%. When you combine that with the increase in home prices, in some places, it's gotten nearly twice as expensive to buy basically the same house in just two years. So Sanchez, for one, has just given up. He's got a good union job. His wife is a lawyer. But they just cannot afford a house.

SANCHEZ: It's not something that either of us like to harp on or complain about, but it does make you feel down after a while to not be able to make that next step. We don't have the equity in a home right now, and that's scary for the future. I want to be more stable for my family.

ARNOLD: And this past week, we saw the number of people trying to get a mortgage to buy a home has fallen 21% from a year ago. So a lot of people are giving up.

SIMON: Which means that they have to rent, and that pushes up the price of rentals, I gather.

ARNOLD: It does. The government data shows that rents are rising faster than normal. The big problem here is that after the last housing crash, we just didn't build enough homes to rent or to buy for about a decade. And that's the biggest reason housing is so expensive. So we just need to build a lot more homes to catch up. Economists say one thing that would really help is if states passed zoning changes to allow for smaller homes built closer together that are more affordable.

SIMON: NPR correspondent Chris Arnold, thanks so much.

ARNOLD: Absolutely. Thanks, Scott. Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.