Thursday, June 18, 2026

Peace Deal Won’t Completely Fix What Ails the American Economy

By EDDIE RIVERA

Easing of U.S.-Iran tensions may cool energy prices, but housing costs, regulatory burdens, and the Fed’s stubborn rates are keeping the economic squeeze on American households

The agreement to end the US-Israel imposed Iran war brought sighs of relief across financial markets and kitchen tables from coast to coast. Energy prices, which had been grinding household budgets and distorting inflation data for months, may finally find room to fall. But for millions of Americans still priced out of homeownership, strapped by elevated borrowing costs, and watching their neighborhoods lose affordable housing stock, the cease-fire changes little. 

The war also came with a significant price tag—$300 billion“ for the reconstruction and economic development of the Islamic Republic of Iran.” 

That message, embedded in the latest economic assessment from the California Association of Realtors (CAR), acknowledges the improved geopolitical picture while recognizing structural economic problems that no peace deal can quickly undo. 

“Conditions have improved,” the report notes, “but the recovery remains cautious and uneven.” 

For California in particular, the structural pressures are acute. The state’s housing market has long been defined by supply constraints and high regulatory costs that predate the conflict with Iran by years. Peace will not rezone a single neighborhood. It will not speed a permit. It will not make a $499,500 entry-level home more accessible to a household earning the state median income. 

Consumer prices surged 4.2% in May from a year earlier, the highest annual increase since April 2023 and the first time in three years that inflation climbed above 4%. The headline Consumer Price Index rose 0.5% from the prior month alone. Energy prices drove much of the pain, jumping 23.5% year-over-year and accounting for more than 60% of the overall monthly gain. 

Strip out energy and food, and the picture looks a little more manageable. Core inflation rose just 0.2% month-over-month and 2.9% annually in May. That underlying moderation is real. The CAR report suggests that with the Strait of Hormuz reopening and U.S.-Iran tensions easing, energy-driven price pressures could soften in the months ahead. 

But the Federal Reserve is not moving. Officials are expected to hold the federal funds rate unchanged at their next meeting, and the odds of a rate cut before year-end remain slim. That means mortgage rates stay elevated, monthly payments stay punishing, and the dream of homeownership stays out of reach for a wide swath of the country. 

Beyond the consumer price data, a broader pessimism has settled into Main Street. The NFIB Small Business Optimism Index fell 0.6 points in May to 95.3, its lowest reading since October 2024. The NFIB Uncertainty Index climbed to 91, well above its historical average of 68, as business owners confronted unresolved conflict and persistent supply chain disruption. 

Seven in ten small business owners reported that supply chain disruptions affected their operations to some degree. The squeeze on profit margins left many with no alternative but to pass costs on to customers. The net percentage of owners raising average selling prices jumped to 36% in May, the highest reading since March 2023. Those planning future price increases hit 34%, a level not seen since July 2022. 

The net share of business owners expecting better conditions in the months ahead fell for a fifth consecutive month, to just 3% in May. The CAR report notes that the resolution of the conflict should ease some of this anxiety. But the data reflects a business community that has been waiting for relief for a long time. 

Whatever relief the peace agreement delivers at the gas pump, it will not build a single home. 

A study released by the National Association of Home Builders found that government regulatory costs on a typical new single-family home have climbed more than 40% over the past five years, reaching $131,734 in 2026, up from $93,871 in 2021. Those costs now represent 26.4% of the final price of a newly built home, nearly three percentage points higher than five years ago. 

With the average price of a new single-family home sitting at $499,500, the regulatory burden alone accounts for more than a quarter of the purchase price before a buyer absorbs rising costs for building materials, finished lots, and skilled labor. The CAR report warns that if the trend continues, new housing supply could shrink further, worsening an affordability crisis that already defines housing markets from California to the Carolinas. 

Meanwhile, existing homeowners are increasingly tapping the equity they have accumulated. According to the ICE Mortgage Monitor report, equity withdrawals in the first quarter of 2026 reached $47 billion, a 2% increase from the same period a year earlier and the highest first-quarter total since 2021. 

The driver is the mortgage lock-in effect. Millions of homeowners carry first mortgages from 2020 to 2022, when rates sat well below current market levels. Rather than sell or refinance, they are turning to second liens to access cash. More than half of all equity withdrawals in the first quarter came through second liens, with 248,000 borrowers extracting $25 billion that way. Second liens posted their strongest performance in 18 years. 

The CAR report flags this trend as a distinct risk. As monthly debt burdens climb for homeowners carrying second liens on top of first mortgages, the potential for defaults rises. That risk is compounded by a separate finding: U.S. foreclosure filings jumped 14% in May from a year ago, reaching 40,355 properties with active filings. California recorded one foreclosure in every 3,541 homes, ranking 18th among all states. 

The report offers a measured note of reassurance: strong homeowner equity and disciplined lending practices continue to limit default activity, and foreclosure volumes remain well below historical norms. But the year-over-year acceleration is hard to ignore, particularly in a market where household budgets are already stretched.