By Peter Wechsler
President & Co-Founder, Franklin Retirement Solutions
[email protected]
It’s been a while since I penned this column from 35,000 feet up in the air. Rob and I are returning from a “conference” in Cancun. I know…tough life. We attended a few valuable business meetings and came home with some good ideas. Beautiful resort in Playa Mujeres, but don’t go to the SLS resort for the food. One last thing: American Airlines upgraded me to first class, perhaps as a payback for some of the flight delays and cancellations in the past. Who knows?
As Kyle wrote, there’s been enough market volatility since the end of June to drive some high-tech investors crazy. Hopefully the market will calm down for investors but inflation is still a major problem for middle class folks, especially families with kids. Yes, the media talks about gas prices every day but inflation goes much deeper.
Think about cars. The average new car/SUV/light truck is over $50,000. Right now the average light vehicle on U.S. roads is 12.8 years old. According to ChatGPT, here’s the breakdown:
• Passenger cars: 14.5 years old
• Light trucks (including SUVs and pickups): 11.9 years old
Back in 2010, the average age was 10 years old. By 2020, it had creeped up to 12 years old.
One big change in the last 5 years is how few sedans are on the road. Many manufacturers have stopped producing cars such as the Chevy Impala and Malibu, the Ford Fusion, the Nissan Maxima, and the Toyota Avalon. Another factor with smaller cars and SUVs is the effect tariffs are having on the price of smaller, less expensive cars. Some models no longer make financial sense for some car manufacturers. So far, the manufacturers are lucky that Chinese cars aren’t approved in the states.
Used cars are a whole ‘nother discussion, but let’s leave that for a future column. Instead let’s take the “way-back machine” and switch to housing for a few minutes. Again, according to my new best friend ChatGPT, in 2024 the average home across the U.S. was 42 years old, meaning it was built around 1982. By comparison, the median age of a house in 2005 was only 31 years old. According to a recent column in the Wall Street Journal, not only is the typical home now 44 years old but it needs tons of work.
As the article points out, a home-construction boom burst open in the roaring 20s, when millions of homes were built across the country. Single family units roared across the suburbs after World War II. Repairing and maintaining these old homes is extremely expensive now that inflation has raised costs on roofing, new gutters, siding, driveway repairs, HVAC, plumbing, and even painting. Don’t even talk about the costs of adding a room or updating the kitchen. Oh, and don’t forget the higher property taxes and HOA fees.
As for mortgage rates in 1984, the average was around 16%. By comparison, 6.5% today isn’t so bad. The problem now is insufficient new construction has raised housing prices way beyond today’s inflation rate. Blame it on land restrictions, tariffs, and not enough trained construction workers. One last problem is that those who locked in super low mortgages during Covid have little motivation to buy a new house and swap their mortgage with a much higher rate today.
Lots of food for thought but I hope you enjoy the summer weekend. Labor Day will be here before we know it…
Peter