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Don’t expect gas, food or housing prices to drop anytime soon, experts say

DURHAM, NC – With gas prices and interest rates rising, the country is heading for a recession, three Duke economists said Wednesday. Still, higher prices will eventually reverse and the local housing market should be mostly healthy because demand will exceed supply.

Three Duke experts spoke to journalists in a virtual briefing on gas prices, inflation, interest rates, the housing market and other important issues. Watch the briefing on YouTube.

Here are excerpts:

On whether interest rates continue to rise

Connell Fullenkamp, ​​Professor of Practice and Economics

“We are seeing interest rates rise. They are really increasing throughout the spring. (The Federal Reserve) is strong evidence that inflation is slowing and the economy is cooling down.

“We still have a lot of families with money left over from infectious financial incentive packages, and a lot of people have increased consumption demand because I see this as the last hurray summer in terms of consumption. They want to take a summer vacation, they know that prices are going up. People go, ‘Let me go out and spend this extra money before the prices are too high.’

“So I think the Fed needs to wait a while to see significant evidence that the economy is cooling off with its actions.”

With rising home prices in North Carolina

David Berger, Associate Professor, Economics

“Interest rates have increased significantly. I suspect the housing market has cooled a bit compared to what it has been over the last two or three years. But for the triangle in particular, I am quite surprised – it will definitely chill at the top of the market – but I am very surprised. This would be a more modest cooling. It is important to remember that we still have record low residential inventory in the Triangle.

“Many people are still moving here. 15 homes a day for Wake County, five homes a day for Durham County. I expect to see fewer bidding wars, maybe, and some will come down.

“But for sure mortgage rates are high – average payments are at least 30 percent more expensive than they were a year ago – and that’s pretty substantial.”

On the rise of gas prices and other commodities

Emma Rasil, professor of practice, economics

“We are definitely expecting gas prices to remain high. For most of us this is a very significant price increase. We fill a single sized tank every week so we know exactly how much it is.”

“Food is another big issue in terms of price. We have seen a lot of meat prices rise in particular. Fruit and vegetable prices have not increased for a variety of reasons, but I think we can see that fruits and vegetables are going up in price over the course of this year because there are restrictions on access to fertilizers, which is really affecting them. Production cycles. “

On the impact of the gas tax holiday

Emma Rasil

“If there is a gas tax holiday in the summer, it is suggested … What we have to remember is that it is up to the gas supplier to decide how much money to send to the customers. The gas supplier (who) gets that break. Your tank filling costs maybe $ 1 or $ 1.50 less.

“I honestly don’t think it makes a big difference. I think it’s the most PR exercise of all.

On whether inflation helps boost gas prices

Connell Fullencamp

“Inflation is going to carry higher prices. People are really dependent on their cars. People take a long time to adjust to their lifestyle. You can’t really pick up and move.

“The real story behind gas prices is refining capacity. Gas prices are higher than what we’ve seen when oil prices went up. Due to lack of capacity, we are seeing a lot of gas prices go up.

On whether the electric vehicle market is rising

Connell Fullencamp

“There are plenty of aspirations to move to electric vehicles, but they are only a small part of the market.

“So even though all people have to buy electric automobiles and have the money, we have really limited capacity to expand production of electric vehicles at this stage.”

On whether housing prices are dropping

David Berger

“All the housing markets are local. It depends on the housing market. Looking back at the housing market in the early 80s, where we had a huge increase in interest rates under the Reagan administration, the right precursor. There we saw a drop in house prices.

“I think it’s not unreasonable to expect prices to drop 5, 10 percent in many markets around the United States.”

“I expect the top of the market to rise. Buying a million dollar home is more expensive than before.

“I can see housing prices moderating. My expectation here is that they are moderate. Last year, housing prices in Durham and Raleigh rose by at least 30 percent. That won’t happen again. So as prices increase, home prices may fall slightly.

“There is less housing available in the Triangle. It indicates there is not enough supply. So even if demand is low, there is still room for home prices to rise.

On whether certain prices on staple commodities are falling

Emma Rasil

“It is not unheard of to see prices actually decline – not just to rise but to come down again and again.

In 2008, gas prices were $ 4; five or six years later it was less than $ 2 per gallon; now it is back. Are markets.

When spending is low

Connell Fullencamp

“Who has the extra money and how do they use it? By the end of the summer, most families who have extra money and are willing to spend it, for example, need to spend it, not just on savings. One of the realities of using a policy is that it only takes a long time. Monetary policy works for the banking system; you have to wait until people stop lending.

On whether new economic policies are needed

Emma Rasil

“I’ll turn that question around in a different way and say, ‘How sensible is it to experiment with so many different policies?’ And it is better to go with the monetary policy that has been used for decades as it will take time but will work over time – it is better to focus on it and keep trying other things.

“Specifically, tax on gas is a holiday. It has short-term effects and may affect fewer consumers than the government intends. They may end up benefiting gas companies.

“What we have to look at is … we need to spend more money swimming in the economy because of all the financial stimulus, so that the economy can settle down and get back to the pattern we understand better.”

On whether people will be upside down on home loans again

David Berger

“We’ve learned to have good insurance standards. The good news is that underwriting standards are much better. It’s hard to get a loan if you’re more vulnerable or defaulted than the previous one.

“A lot of homes have a lot of cushion. With house prices soaring recently, homes have a lot of cushion. They are more able to deal with these moderate price-declines that may occur. I’m not particularly worried about foreclosures.

On top of customer frustration with high costs

Connell Fullencamp

“If I’m a retailer, one sure way to satisfy my customers is to increase prices frequently. So in many cases what retailers are trying to do, they are trying to moderate the number of price increases. If you’re in a situation like that, you’re trying to pass some costs but trying to hold the line on an increase in number or price, you’re in a real guessing game.

Faculty participants

David Berger
David Berger is an assistant professor in the Department of Economics at Duke. His research interests include housing, labor and finance.

Connell Fullencamp
Connell Fullenkamp is Professor of Practice and Director of Undergraduate Studies in the Department of Economics at Duke. He studies financial market development and regulation of financial markets.

Emma Rasil
Emma Rasil is an assistant chair and professor in the Department of Economics at Duke. He is the faculty director of the Duke Financial Economics Center. Rasil teaches courses on financial markets and energy finance.

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