Category Archives: Finance & Economics

The US housing shortage has profound economic consequences. Less discussed is the fact that it is slowing down the US climate transition. Many regions of the United States, especially California and New York, are failing to build dense urban housing which is associated with lower emissions. But there is another, indirect way that the housing shortage is sabotaging efforts to decarbonize the US economy. Inadequate housing is stimulating inflation and lifting interest rates, which hurts the economic viability of clean energy projects. California, New York, and other states should move heaven and earth to authorize and construct new housing rapidly, especially in dense urban areas. If these states and others prioritize building houses, emissions and interest rates could fall substantially, providing a major economic and climatological boost to the United States. …Expanding dense, urban housing options should be a top policy priority.

Consumer confidence held steady in March, with optimism about current conditions offset by concerns about the future economic outlook. This pessimism was primarily driven by persistent inflation, especially elevated food and gas prices. The Consumer Confidence Index, reported by the Conference Board, stood virtually unchanged at 104.7 in March, the lowest level since November 2023. The Present Situation Index rose 3.4 points from 147.6 to 151.0, while the Expectation Situation Index fell 2.5 points from 76.3 to 73.8. Historically, an Expectation Index reading below 80 often signals a recession within a year. Consumers’ assessment of current business conditions fell slightly in March. …Meanwhile, consumers’ assessments of the labor market were more positive. …The Conference Board also reported the share of respondents planning to buy a home within six months increased to 4.9% in March. Of those, respondents planning to buy a newly constructed home remained at 0.3%.

A small rise in mortgage rates in February led to a flat reading for new home sales. Sales of newly built, single-family homes in February edged 0.3% lower to a 662,000 seasonally adjusted annual rate, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in February is up 5.9% from a year earlier. Mortgage rates averaged 6.78% in February compared to 6.64% in January, according to Freddie Mac. …New single-family home inventory in February remained elevated at a level of 463,000, up 1.3% from January. This represents an 8.4 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced. …The median new home sale price in February was $400,500, edging down 3.5% from January, and down 7.6% compared to a year ago. 

The U.S. Federal Reserve left the interest rates steady at 5.25%-5.5% Wednesday, as expected, and held its projection of three rate cuts for this year, alleviating market concerns it would adopt a more hawkish stance. Policymakers on the Federal Open Market Committee forecast they would lower interest rates to 4.6% by the end of 2024, according to the March meeting’s economic projection, the same median level as their December outlook. …Before the FOMC announcement, most market participants had priced the first rate cut for June. Now, the market puts 70% odds for at least one rate cut by June, up from over 60% earlier, according to CME FedWatch Tool data. The decision followed hotter-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) reports, sparking concerns that inflation might accelerate.

Pent-up demand, moderating interest rates, and a lack of existing inventory helped push single-family starts in February to their highest level since April 2022. Overall housing starts increased 10.7% in February to a seasonally adjusted annual rate of 1.52 million units. The February reading of 1.52 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts increased 11.6% to a 1.13 million seasonally adjusted annual rate. …The multifamily sector increased 8.3% to an annualized 392,000 pace for 2+ unit construction in February. …Overall permits increased 1.9% to a 1.52 million unit annualized rate in February and are up 2.4% compared to February 2023. Single-family permits increased 1.0% to a 1.03 million unit rate and are up 29.5% compared to the previous year. Single-family permits increased 1.0% to a 1.03 million unit rate and are up 29.5% compared to the previous year.

NAHB’s 2024 edition of What Home Buyers Really Want was recently released at the International Builders’ Show. …The study reveals that there has been a permanent downward shift in buyer preferences for home size. …The average size of new homes started in 2023 dropped to 2,411 square feet (the smallest in 13 years), continuing a downward trend that began in 2015 when average home size peaked at 2,689 square feet. The only year that saw home size increase during this period was 2021, due to the pandemic. But the decline in average home size resumed in both 2022 and 2023. Importantly, the median size of new homes has also trended down for a decade, reaching 2,179 square feet in 2023. …This is the first of a series of posts over the next few weeks that will cover the most important findings.

The increase in mortgage rates in February has driven a modest downgrade to expectations for total home sales and mortgage originations in 2024, according to the March 2024 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. The ESR Group now expects the 30-year fixed mortgage rate to end the year at 6.4 percent, up from the 5.9 percent predicted in last month’s forecast. Strong headline jobs numbers and hotter-than-expected inflation data had led financial markets to price in a less aggressive rate-cutting path by the Federal Reserve, and while the ESR Group notes that labor market indicators are mixed and disinflation will likely resume, it also believes that recent data are unlikely to provide the Fed with the “greater confidence” it needs to begin easing monetary policy in the near term. 

The American Forest & Paper Association (AF&PA) released its February 2024 Printing-Writing Monthly report. Total printing-writing paper shipments decreased 1% in February compared to February 2023. U.S. purchases of total printing-writing papers remained essentially flat (-0.1%) in February compared to the same month last year. Total printing-writing paper inventory levels decreased 1% when compared to January 2024. …Uncoated Free Sheet (UFS) shipments remained flat, Coated Free Sheet (CFS) shipments increased by 5%, and Mechanical (MECH) paper shipments decreased by 17%. By volume, shipments of Mechanical papers were the highest seen in the past 10 months.

AF&PA also released its February 2024 Packaging Papers Monthly report. Total packaging papers & specialty packaging shipments in February increased 5% compared to February 2023. They were essentially flat when compared to the same 2 months of 2023.

A lack of existing inventory that continues to drive buyers to new home construction, coupled with strong demand and mortgage rates below last fall’s cycle peak, helped push builder sentiment above a key marker in March. Builder confidence in the market for newly built single-family homes climbed three points to 51 in March, according to the NAHB/Wells Fargo Housing Market Index (HMI). This is the highest level since July 2023 and marks the fourth consecutive monthly gain for the index. It is also the first time that the sentiment level has surpassed the breakeven point of 50 since last July. …All three of the major HMI indices posted gains in March. The HMI index charting current sales conditions increased four points to 56, the component measuring sales expectations in the next six months rose two points to 62 and the component gauging traffic of prospective buyers increased two points to 34.

WASHINGTON — U.S. single-family homebuilding rebounded sharply in February, hitting the highest level in nearly two years, amid mild temperatures and a persistent shortage of previously owned houses on the market. Homebuilding could gain further momentum this year, with mortgage rates likely to continue their downward trend on expectations that the Federal Reserve will start cutting interest rates by June, and contribute to economic growth. The report from the Commerce Department on Tuesday also showed permits for the future construction of single-family housing units rose to more than a 1-1/2-year high last month. …Single-family housing starts, which account for the bulk of homebuilding, surged 11.6% to a seasonally adjusted annual rate of 1.129 million units last month, the Commerce Department’s Census Bureau said. That was the highest level since April 2022.

Over the first month of 2024, the total number of single-family permits issued year-to-date nationwide reached 75,906. On a year-over-year (YoY) basis, this is an increase of 43.1% over the January 2023 level of 53,062. Year-to-date ending in January, single-family permits were up in all four regions. The range of permit increase spanned 67.0% in the West to 19.4% in the Northeast. The South was up by 39.4% and the Midwest was up by 36.5% in single-family permits during this time. For multifamily permits, the regions were split, with half posting increases and the other posting decreases. The Northeast was up by 64.5% and the Midwest was up by 13.6%. The South posted a decline of 32.5% and the West declined by 27.9% in multifamily permits during this time.

Inputs to residential construction, goods less food and energy, increased for the fourth consecutive month to a new high, according to the most recent Producer Price Index (PPI) report published by the U.S. Bureau of Labor Statistics. The index for inputs to residential construction, goods less food and energy, represents building materials used in residential construction. The non-seasonally adjusted index increased 0.49% between January and February after increasing 1.27% between December and January. …The seasonally adjusted PPI for softwood lumber fell for the seventh consecutive month, down 2.98% in February. Softwood lumber prices were 10.35% lower in February 2024 when compared to 2023. …The non-seasonally adjusted PPI for gypsum building materials jumped 2.95% in February after falling for ten straight months. …The seasonally adjusted PPI for ready-mix concrete rose 0.25% in February after rising 1.76% in January. …The non-seasonally adjusted PPI for steel mill products rose for the third straight month, up 2.86% in February.

WASHINGTON — The American Forest & Paper Association (AF&PA) Board of Directors announced key advocacy priorities for 2024. …Howard Coker, AF&PA Board Chair and Sonoco President and CEO… “It is critical that both state and federal policies not jeopardize access to essential paper products or hinder countless modernization projects for our industry.” This year, several regulatory and policy challenges face both the paper and wood products industry and the U.S. manufacturing sector. “The growing regulatory burden, including recent EPA air regulations, are threatening U.S. manufacturing jobs and the economy. Meanwhile extended producer responsibility policies and the European Union’s Deforestation Regulation stand to impede our focus on a circular value chain,” said Heidi Brock, AF&PA President and CEO. Brock continued, “As a condition of membership, AF&PA members are committed to sustainable forest management and sourcing wood fiber from responsibly managed forests.”

Consumer prices in February saw another uptick, primarily fueled by the increases in shelter and gasoline prices, which contributed to over 60% of the total increase. Despite a slowdown in the year-over-year increase, shelter costs continue to put upward pressure on inflation, accounting for roughly two-thirds of the total increase in all items excluding food and energy. Given the ongoing elevated inflation, the Federal Reserve is expected to delay rate cuts until the second half of the year. …The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.4% rise in February, following an increase of 0.6% in January. The indexes for owners’ equivalent rent increased by 0.4% and rent of primary residence rose by 0.5% over the month. These gains have been the largest contributors to headline inflation in recent months.

The past year saw over 1.4 million new homes added to the national housing inventory. Despite the 4% growth in units compared to 2022, both the number of new homes under construction and the number of permits dropped year-over-year (YOY). Permitting for new housing has declined for the second year in a row—down 11% in 2023 according to the Housing Construction Report, a yearly analysis of housing trends by Point2. Similarly, the number of multifamily housing starts dropped 9% YOY. Overall, 70% of all U.S. metros saw a reduction in permitting last year. What does this mean for multifamily development in 2024? … Only a handful of metropolitan areas saw an increase in permitting in 2023. The three metros with the most permits issued were Phoenix, Ariz., and Houston and Dallas, Texas. Overall, the top three states—Texas, Florida, and California—make up more than one-third of all permits issued last year. 

Jerome Powell

WASHINGTON — Consumer prices likely rose last month at a pace that would exceed the Federal Reserve’s inflation target, underscoring why the Fed is being cautious as it considers when to cut interest rates and suggesting that inflation will remain a potent issue in this year’s presidential election. Yet Tuesday’s report from the Labor Department may also show that underlying price pressures continue to ease, which would be an encouraging sign that inflation is gradually coming under control. Economists have estimated that prices rose at a brisk 0.4% annual pace from January to February, up from a 0.3% rise the previous month, according to estimates compiled by FactSet. Compared with a year earlier, inflation is expected to have remained 3.1% in February, unchanged from January. …Most economists expect the Fed’s first rate cut to occur in June, though May is also possible. 

Related coverage in Bloomberg: US CPI Won’t Inspire Fed to Cut Rates

WASHINGTON, DC – The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased 2.1 points in February to 72.8, inching higher for the third consecutive month, due primarily to increased optimism around home-selling conditions. In February, 65% of consumers said it’s a good time to sell a home, up from 60% last month. The share of those who believe it’s a good time to buy a home ticked up slightly this month but remains at an extremely pessimistic 19%. Additionally, a plurality of consumers continues to believe that mortgage rates will go down over the next 12 months, although on net that component fell slightly this month. Overall, the full index is up 14.8 points year over year.

Multifamily starts are predicted to decline further in 2024, according to the National Association of Home Builders. In 2023, multifamily starts totaled 472,000 units—down 14 percent compared to the previous year. NAHB’s apartment experts are projecting that this year multifamily starts will fall 20 percent to a 379,000 total. …“Tight lending conditions and the high cost of development loans continue to hinder additional multifamily housing production,” said Nanayakkara-Skillington. …Construction prices have come down… However, the price of lumber will rise if anticipated Canadian lumber tariffs are implemented. “Lumber prices are going to go up—if we don’t increase domestic production—which is highly unlikely,” she explained. In addition to tight lending conditions and the high cost of development loans, multifamily faces a shortage of skilled labor.