Why mortgages keep going up
Rising mortgage rates reflect increased competition for credit in the lending market, driven primarily by massive government borrowing and AI development spending. The U.S. government's annual borrowing of 6% of GDP crowds out private borrowers like mortgage seekers, causing lenders to prefer government debt over personal mortgages.
Summary
The speaker uses a market analogy to explain why mortgage costs are increasing. Just as apple prices rise when supply decreases or demand increases, interest rates (the price of credit) rise when loan supply shrinks or demand surges. The speaker identifies two major drivers of increased loan demand in the current economy: the development of artificial intelligence, which requires hundreds of billions in capital investment, and U.S. government borrowing, which amounts to 6% of GDP annually. This government borrowing exceeds even the capital costs of AI development. With such substantial demand from the government competing for available credit, private borrowers seeking mortgages find themselves at a disadvantage. Lenders face a choice between lending to individuals for mortgages or lending to the U.S. government, which will repeatedly borrow in subsequent years. Facing this decision, lenders rationally prefer the government as a borrower, leaving mortgage seekers with higher costs as they compete for remaining credit in the market.
Key Insights
- The speaker argues that interest rates function as prices in a credit market, and rising rates indicate either reduced loan supply or increased demand, following basic market economics
- The speaker claims that U.S. government borrowing at 6% of GDP annually exceeds the capital costs of artificial intelligence development, making it the larger demand factor in the credit market
- The speaker contends that lenders rationally prefer lending to the U.S. government because it will borrow repeatedly in future years, rather than lending to individual mortgage applicants
- The speaker characterizes government borrowing as a structural, recurring demand on credit markets that directly crowds out private borrowers seeking mortgages
- The speaker uses a comparative market framework, treating credit like any other commodity where price changes reveal underlying supply and demand shifts
Topics
Transcript
[0:00] You want to take out a mortgage, and the amount you have to pay is increasing. Let's take my very simple story about how the credit market is like any other market. If I saw that the price of apples had increased, I would think that either the harvest was bad and there were fewer apples, or that many people wanted to buy them. The interest rate is the price of credit. If I see this price increasing, then either someone has reduced the supply of loans, or the demand for them has increased sharply. What could it be? The most obvious things I see in the economy right now are the development of artificial intelligence, a huge [0:31]…
Full transcript available for MurmurCast members
Sign Up to AccessMore from Prof G Markets
Aura ring has delayed its IPO
Oura has postponed its IPO, citing poor market conditions despite stock markets being near historic highs. The speaker suggests the real issue is investor concerns about company valuations, noting that even solid, mature companies with significant revenues can become bad investments at the wrong price point.
Scott Galloway offers wedding advise
Scott Galloway shares unconventional wedding advice, suggesting people avoid traditional weddings by disguising celebrations as parties or birthday events to prevent vendors from inflating prices by 50%. He also discusses his own minimalist approach to marriage and emphasizes the importance of dividing responsibilities with a partner based on each person's strengths.
Scott Galloway: no one talks about the irony of Cannes in 2026
Scott Galloway highlights the irony that while the advertising and media industry gathers at Cannes, they fail to recognize that creators—not traditional industry players—have become the true celebrities and protagonists. The creator economy is experiencing significant growth with spending increasingly distributed across nano and micro-influencers rather than concentrated among top earners.
Tom Lee on Scott Galloway's 2026 stock pick
Tom Lee identifies Amazon as his top tech stock pick for 2026, arguing that the company's massive robotics advantage (1 million robots vs. 400,000 combined for the rest of the nation) positions it to capture significant shareholder value from AI-driven automation and industrial robots. Scott Galloway extends this thesis by proposing Amazon could expand beyond logistics into residential construction and home delivery, potentially doubling its total addressable market.
Tom Lee just bought $40M of Ethereum (when it's down almost 50% in 6 months)
Tom Lee explains why his firm Bitmine purchased $40M in Ethereum despite the cryptocurrency being down significantly from its highs. He argues that blockchain's proven track record of secure, trustless transactions and its emerging role in replacing legacy financial infrastructure make crypto a sound investment, particularly as AI agents increasingly control wealth.