Category Archives: Finance & Economics

In 2021 and the first half of 2022, there were what might be termed ‘freakish’ year-over-year increases in construction material costs. At its most extreme, the y/y price climb for construction material inputs collectively approached plus one third. Since then, they have largely settled down, to the point where y/y material input costs are now being exceeded by y/y wage hikes (i.e., -0.5% compared with +5.9%. …The changes in material prices for an array of inputs are most clearly shown. The easing-off is readily apparent in forestry products, most steel items, and in energy-related areas. At present, with little in the way of moderation, or only a flattening, are gypsum, cement and related products, insulation materials, what are termed ‘accessory’ materials (e.g., glass, paint, lighting and plumbing fixtures), and equipment.

No other phrase has defined the 2023 housing market as much as the “mortgage rate lock-in effect” – a phenomenon that brought the industry to a standstill, putting downward pressure on everything from inventory levels to home sales. The pandemic-era sub-5% mortgage interest rates that 85% of mortgage holders are locked in to kept homeowners from selling their home and buying another at elevated interest rates, which peaked at 7.79% the week ending Oct. 26, according to Freddie Mac. But will things change this year? There are signs that market conditions will be improving. Mortgage rates dropped steadily over the past seven weeks, providing a boost to existing-home sales, according to the National Association of Realtors. …One thing most experts don’t expect to see is an end to shortage of homes for sale.

MCLEAN, Virginia — Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), showing the 30-year fixed-rate mortgage (FRM) averaged 6.61%. “The rapid descent of mortgage rates over the last two months stabilized a bit this week, but rates continue to trend down,” said Sam Khater, Freddie Mac’s Chief Economist. “Heading into the new year, the economy remains on firm ground with solid growth, a tight labor market, decelerating inflation, and a nascent rebound in the housing market.” …The 30-year FRM averaged 6.61% as of December 28, 2023, down from last week when it averaged 6.67%. A year ago at this time, the 30-year FRM averaged 6.42%. The 15-year FRM averaged 5.93%, down from last week when it averaged 5.95%. A year ago at this time, the 15-year FRM averaged 5.68%.

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly announced the following new residential sales statistics for November 2023. …Sales of new single‐family houses in November 2023 were at a seasonally adjusted annual rate of 590,000. This is 12.2% below the revised October rate of 672,000, but is 1.4% above the November 2022 estimate of 582,000. …The median sales price of new houses sold in November 2023 was $434,700. The average sales price was $488,900. …The seasonally‐adjusted estimate of new houses for sale at the end of November was 451,000. This represents a supply of 9.2 months at the current sales rate.

Twelve months ago, few would have backed a debt-laden used-car sales platform and a building supplies group to be among the standout performers on the US stock market. …In terms of sectors, homebuilders’ success was the one most didn’t see coming. Rising rates were expected to lower house prices but instead they effectively trapped US homeowners reluctant to give up their low 30-year fixed-rate mortgages — something that last happened too long ago for most to remember. The resulting supply shortage squeezed prices to new records and developers couldn’t build fast enough. Even Warren Buffett bought in, but it was a supplier that actually did best. Builders FirstSource rose more than 150%, joining the S&P 500 in December, where its gains rank it in the top five performers for the year. The simplest takeaway is the oldest one: when you first see a gold rush, buy shovels. 

WASHINGTON – The American Forest & Paper Association (AF&PA) released the November 2023 Printing-Writing Monthly report. According to the report, total printing-writing paper shipments decreased 16% in November compared to November 2022. U.S. purchases of total printing-writing papers decreased 24% in November compared to the same month last year. Total printing-writing paper inventory levels remained essentially flat (+0.4%) when compared to October 2023. Individually, shipments in all three major P-W grades (UFS, CFS and MECH) in November decreased as well. Uncoated Free Sheet shipments decreased 10% when compared to November 2022, Coated Free Sheet shipments decreased 21% compared to the same period last year, and Mechanical papers shipments decreased 39% compared to the same period last year.

WASHINGTON – The number of Americans filing new claims for unemployment benefits rose marginally last week, the latest suggestion that the economy was regaining some momentum as the year winds down. The smaller-than-expected increase in weekly jobless claims reported by the Labor Department on Thursday followed recent data showing retail sales unexpectedly rising in November, while single-family housing starts and building permits scaled 1-1/2-year highs. Those reports prompted economists to boost their growth estimates for the fourth quarter. The economy had appeared in danger of stalling at the start of the quarter. There was even more good news on inflation, with other data on Thursday showing significantly more progress made toward returning it to the Federal Reserve’s 2% target in the third quarter than previously reported. 

Existing home sales rose in November from a 13-year low, ending a five-month decline, according to the National Association of Realtors. This increase in sales was driven by a strong gain in the South, where homes are considered more affordable. Low inventory and strong demand continued to drive up existing home prices. However, recent declines in mortgage rates and a continued improvement in inventory are expected to fuel more demand in the coming months. Total existing home sales, including single-family homes, townhomes, condominiums, and co-ops rose 0.8% to a seasonally adjusted annual rate of 3.82 million in November. On a year-over-year basis, sales were 7.3% lower than a year ago. The first-time buyer share rose to 31% in November, up from 28% in October 2023 and November 2022. The November inventory level decreased slightly to 1.13 million units but was up 0.9% from a year ago.

The Conference Board Consumer Confidence Index® increased in December to 110.7 (1985=100), up from a downwardly revised 101.0 in November. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose to 148.5 (1985=100) from 136.5 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—leapt to 85.6 (1985=100) in December, up from its downwardly revised reading of 77.4 in November. This sharp increase brings expectations back to the levels of optimism last seen in July of this year. …Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months abated in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024.”

WASHINGTON, DC – Single-family home sales likely bottomed out in Q4 2023 and, due to the recent pullback in mortgage rates, are expected to begin a slow but meaningful recovery over the course of the next year, alongside upward-trending mortgage origination activity, according to the December 2023 commentary from the Fannie Mae Economic and Strategic Research (ESR) Group. Purchase mortgage applications have rebounded… however, the lock-in effect, and a lack of homes available for sale, will likely persist in 2024. As such, the ESR Group expects the home sales recovery to be meaningful but slow. The ESR Group also continues to forecast a modest downturn in 2024, followed by a return to growth in 2025. …While the likelihood of a soft landing has certainly improved over the last few months, engineering it while avoiding a resurgence in inflation will likely be a difficult task.

Single-family construction surged in November as lower mortgage rates helped to assuage affordability concerns and unleash pent-up demand for housing. Overall housing starts increased 14.8% in November to a seasonally adjusted annual rate of 1.56 million units. …The November reading of 1.56 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 18% to a 1.14 million seasonally adjusted annual rate. However, single-family starts are down 7.2% year-to-date. The multifamily sector, which includes apartment buildings and condos, increased 6.9% to an annualized 417,000 pace. Lower interest rates and a lack of resale inventory helped to provide a strong boost for new home construction in November. …Overall permits decreased 2.5% to a 1.46 million unit annualized rate in November. Single-family permits increased 0.7% to a 976,000 unit rate. However, single-family permits are down 8.4% year-to-date. Multifamily permits decreased 8.5% to an annualized 484,000 pace.

Falling mortgage rates helped end a four-month decline in builder confidence, and recent economic data signal improving housing conditions heading into 2024. Builder confidence in the market for newly built single-family homes rose three points to 37 in December, according to the NAHB/Wells Fargo Housing Market Index (HMI). With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic. The housing market appears to have passed peak mortgage rates for this cycle, and this should help to spur home buyer demand in the coming months, with the HMI component measuring future sales expectations up six points in December. …The HMI index gauging traffic of prospective buyers in December rose three points 24, the component measuring sales expectations in the next six months increased six points to 45 and the component charting current sales condition held steady at 40.

Over the first ten months of 2023, the total number of single-family permits issued year-to-date (YTD) nationwide reached 773,526. On a year-over-year (YoY) basis, this is 10.7% below the October 2022 level of 865,815. Year-to-date ending in October, single-family permits declined in all four regions. The range of permit decline spanned 8.6% in the Northeast to 16.1% in the West. The South declined by 8.7% and the Midwest declined by 11.2% in single-family permits during this time. For multifamily permits, the percentage decline spanned 12.0% in the South region to 26.0% in the Northeast. The West declined by 16.4% and the Midwest declined by 22.1% in multifamily permits during this time.

MCLEAN, Virginia — Freddie Mac released the results of its Primary Mortgage Market Survey® (PMMS®), showing the 30-year fixed-rate mortgage averaged 6.95 percent. “Potential homebuyers received welcome news this week as mortgage rates dropped below seven percent for the first time since August,” said Sam Khater, Freddie Mac’s Chief Economist. “Given inflation continues to decelerate and the Federal Reserve Board’s current expectations that they will lower the federal funds target rate next year, we likely will see a gradual thawing of the housing market in the new year.” The 30-year FRM averaged 6.95 percent as of December 14, 2023, down from last week when it averaged 7.03 percent. A year ago at this time, the 30-year FRM averaged 6.31 percent.

According to the latest Producer Price Index report, the price level of inputs to residential construction less energy (i.e., building materials) increased 0.2% in November after declining 0.4% in October. The index has increased 0.8% year-to-date. …Ready-mix concrete prices gained 0.1% in November as monthly price growth slowed for the second consecutive month. …The PPI for gypsum building materials was unchanged in November after falling slightly in October. …The price of steel mill products decreased 1.5% in October. …Softwood lumber price declines accelerated in November as the index dropped 5.8%, more than double the October decrease. The index has fallen 19.7% over the past 12 months and is lower than it has been at any point since March 2020. …The prices of rail and deep sea (i.e., ocean) transportation of freight climbed, respectively, 0.4% and 1.6%,. In contrast, the PPI for truck transportation of freight fell 0.6%.

WASHINGTON — The US Federal Reserve kept its key interest rate unchanged Dec. 13 for a third straight time, a sign that it is likely done raising rates after having imposed the fastest string of increases in four decades to fight painfully high inflation. The Fed’s policymakers also signalled that they expect to make three quarter-point cuts to their benchmark interest rate next year, fewer than the five envisioned by some economists. The relatively few number of rate cuts — which may not begin until the second half of the year — suggest that the officials think high borrowing rates will still be needed for most of next year to further slow spending and inflation.  …So far, the Fed has achieved what few observers had thought possible: Inflation has tumbled without an accompanying surge in unemployment or a recession, which typically coincide with efforts to cool the economy and curb inflation. 

Consumer prices rose slightly in November, with a decline in the gasoline index being offset by an increase in the shelter index. …However, even after peaking in March this year, shelter costs continued to put upward pressure on inflation, accounting for nearly 70% of the total increase in all items excluding food and energy. …The Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose by 0.1% in November on a seasonally adjusted basis, after being unchanged in October. The price index for a broad set of energy sources fell by 2.3%… the index for shelter (+0.4%) was the largest contributors to the increase in the core CPI. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.4% in November, following an increase of 0.3% in October.

The housing market will improve slightly in 2024, but low housing affordability and a weak economic backdrop will help constrain demand, according to projections from Fitch Ratings. According to Fitch, higher-for-longer mortgage rates, elevated home prices, and higher unemployment in 2024 will be headwinds for the housing sector. …In 2024, Fitch Ratings projects single-family housing starts will grow between 3% and 4%, single-family sales will grow in the low single digits, and multifamily starts will fall in the high teens. Fitch projects existing-home inventory will remain tight in the coming year, creating a benefit for builders with the ability to offer quick move-in homes. According to the outlook, the new-home share of the overall housing market will be elevated compared with historical levels over thee last decade and a half.

Realtor.com economists predict that mortgage rates, which have declined over the past five weeks, will slide into the 6% territory in 2024. Fannie Mae expects mortgage rates to decline gradually over the next two years, reaching 6.9% for the 30-year mortgage by 2025. …That’s good news for the market that recently saw mortgage rates climb close to 8%, but the dip won’t be enough to entice existing homeowners with sub-5% mortgages back into the fray. This will continue to complicate supply availability. …With mortgage rates finally decreasing, affordability will likely return to the market, enticing some buyers back. …The forecast for housing is optimistic but hinges on continued moderation of inflation and that the Federal Reserve will begin easing its stance on interest rates. If inflation were to see a resurgence instead, home sales could slip lower instead of steadying, according to Hale.

Jerome Powell

WASHINGTON — With inflation edging closer to the Federal Reserve’s 2% target, its policymakers are facing — and in some cases fueling — hopes that they will make a decisive shift in policy and cut interest rates next year, possibly as soon as spring. Such a move would reduce borrowing costs across the economy, making mortgages, auto loans and business borrowing less expensive. …Fed Chair Jerome Powell, though, has recently downplayed the idea that rate reductions are nearing. With the central bank poised to keep its key short-term rate unchanged when it meets this week, Powell hasn’t yet signaled that the Fed is conclusively done with its hikes. …But the Fed’s two-day meeting that ends Wednesday will mark the third straight time that its officials have kept their key rate unchanged, lending weight to the widespread assumption that rate hikes are over. The economy, after all, is headed in the direction the Fed wants. 

WASHINGTON, DC – The Fannie Mae Home Purchase Sentiment Index® (HPSI) decreased 0.6 points in November, remaining within the bounds of the low-level plateau it established in the first half of 2023. Consumers’ perceptions of homebuying conditions remain overwhelmingly pessimistic, as only 14% of consumers believe it’s a good time to buy a home, a new survey low. Pluralities of respondents also continue to expect both home prices and mortgage rates to increase over the next 12 months. Overall, the full index is up 7.0 points compared to last year. …“The combination of persistent affordability challenges and less rosy household finances remain the primary drivers of the low-level plateauing of housing sentiment. …As our forecast indicates, we believe it will be a couple years before homes sales return to more normal, pre-pandemic levels.”