Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o High interest rates led to the slowest year in decades for existing-home sales. Overall, Americans purchased just over four million existing homes, according to the National Association of Realtors. That marks the fewest since 1995 and is behind the annual pace of five million home sales that was typical before the COVID-19 pandemic.
Sales did pick up toward the end of the calendar year, rising 9.3 percent in December from a year earlier. That was a result from the dip in mortgage rates in the late summer and early fall. In addition, high prices have made homes unaffordable for many seeking to buy, while homeowners who were able to refinance while rates were at lows have little incentive to sell. [The New York Times]
o The wildfires burning in the Los Angeles suburbs rank among the most expensive in America. They have caused major disruption for millions of people and businesses, making it difficult to gauge the ultimate cost to repair damage caused by the fires. Weather data company AccuWeather has projected economic losses to be $250 billion to $275 billion, but Goldman Sachs analysts have found the estimate to be high.
Some consideration for projecting the economic damage caused by the fires include: physical wreckage, work not getting done, long-term health effects, and the rising cost of living. Currently about 12,000 structures have been damaged by the fires with Zillow estimating the average home price of those houses in Pacific Palisades to be $3.4 million. Early estimates of insured losses have reached $30 billion, according to Wells Fargo. In addition, with people who have been forced to evacuate their homes, they are unable to work. The total number of hours worked in Malibu and Pacific Palisades have declined 57 percent from the week the fires started to the week prior. In addition, the wildfires can cause many health issues that become prevalent in the future, such as asthma, cancer and preterm births, and poisons that get lifted into the air when houses burn instead of natural vegetation. In addition, the rising cost of living in California is surely going to exasperate with many people seeking a new place to live. [The New York Times]
o Consumers could soon pay higher coffee prices, as President Donald Trump threatens to impose tariffs and economic sanctions on Colombia. The United States imports 30 percent of its coffee from Colombia, along with other food staples such as bananas and avocados, and gold. Overall, according to the Census Bureau, the US imported $16.1 billion in goods from Colombia in 2023.
Trump announced threats to impose 25 percent tariff and sanctions on Colombia, in retaliation for the Colombia government refusing to let two military planes with migrants to land. Coffee prices have already accelerated since late 2024 over concerns of Brazil’s production due to adverse weather impacting the crop size. [The Wall Street Journal]
o Travelers can expect to pay higher airfares in 2025. Prices for the least expensive flights in the United States are up 12 percent from a year earlier, according to flight comparison and booking app Hopper. Airlines are expecting those higher prices to lift their profits, with revenue among the largest US airlines expected to reach new all-time highs.
Those in high income households, especially, continue to book flights and seek higher-end experiences. Meanwhile, discount airlines such as Frontier, Southwest, Spirit, or JetBlue are adjusting their business models to attract more consumers willing to pay up for extras, such as roomier seats, better snacks or earlier boarding. [The Wall Street Journal]
o The United States is likely to burn a lot more natural gas in the coming years to meet demand, making it more difficult to meet greenhouse criteria to aid the slowth of the warming climate. Analysts believe that America’s goal to cut pollution in half from 2005 to the end of the decade is all but out of reach. For power companies, natural gas is a reliable way to boost energy supplies for new data centers and factories, as well as electric vehicles and heat pumps.
Over the next five years, electricity demand in the United States is expected to grow by almost 16 percent, according to Grid Strategies. By comparison, power consumption increased by less than one percent per year over the last 20 years. [NPR]