Category Archives: Finance & Economics

Lumber prices rebounded toward $500 per thousand board feet, moving away from the eight-month low of $488 observed from June 4th as the latest US data lifted the demand outlook. Softer-than-expected US inflation data, which bolstered expectations for multiple Federal Reserve rate cuts this year, added further optimism for reduced mortgage rates amid a sharp decline in US Treasury yields. Still, housing starts continued to struggle amid high rates and home prices continue to weigh on home builders. Mortgage rates remained above 7% for over two months, while building permits in the US sank for a second straight month in April, limiting the outlook for wood and housing construction materials.

The Federal Reserve’s monetary policy committee held constant the federal funds rate at a top target of 5.5% at the conclusion of its June meeting. …Compared to the Fed’s May statement, the current statement upgraded “lack of progress” stated in May to “modest further progress” referred to this month with respect to achieving the central bank’s 2% inflation target. The FOMC’s statement also noted (consistent with its commentary in May): The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.  Overall, the central bank continues to look for sustained, lower inflation readings, with the data having shown insufficient progress during the first quarter. The May CPI data was a step in the right direction, but the central bank will remain data dependent with respect to an eventual easing of monetary policy.

A closely-watched report on US inflation showed consumer price increases cooled during the month of May, according to the latest data from the Bureau of Labor Statistics released Wednesday morning. The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May — a deceleration from April’s 0.3% month-over-month increase and 3.4% annual gain in prices. Both measures came in lower than economist expectations. It was the lowest monthly headline reading since July 2022. A decline in energy prices, led by a drop in gas prices, contributed to further downward pressure on headline CPI. …”The CPI release for May is very good news for the Federal Reserve and it is going to be even better news for the PCE price index, which will be released at the end of the month,” Raymond James’ Chief Economist Eugenio Aleman said.

Skanska – a Sweden-based global construction and development company – published its Market Trends Report, which revealed three important topics permeating today’s industry. …1. All eyes on Baltimore’s Key Bridge and supply chain—While initial suggestions after the tragedy were that the clean-up and rebuilding process could cause severe issues to the construction supply chain, Cantando said time and investigation has revealed that disruptions should be limited in the build sector. …2. Construction material prices are up—Concrete prices rose throughout 2023 and into 2024 – about 20%. Metal prices continued to inflate, particularly copper. Aluminium is up 16%. Zinc is up 20%. Copper is up 34%. 3. Mass timber is working out efficiency kinks—While the emerging resource of mass timber has excited some and rattled others in the construction industry, Skanska’s panel offered a pragmatic view of the industry, as US states have increasingly codified the material use in recent years and record-breaking high-rises are entering city skylines.

The recession in the U.S. market for existing homes has been so deep that April sales were back to late-’70s levels. …The reason, of course, is that housing affordability has deteriorated so much that many buyers and sellers alike have pulled back from the market. Many homeowners are staying put rather than trading in their 3% mortgage rate for a 7% mortgage rate. …Goldman Sachs projects that existing home sales will slowly drift up from 4.1 million in 2024 to 4.5 million in 2027. Not only is that far below the 6.1 million during the height of the pandemic housing boom in 2021, it’s also well below the 5.3 million U.S. existing home sales during “normal” times in 2019. ….Goldman Sachs predicts the average 30-year fixed mortgage rate will fall to 6.5% by the end of 2024, and to 6.3% by the end of 2025. And analysts at the investment bank forecast that U.S. home prices will rise 3.8% in 2024, followed by 4.4% in 2025.

The Random Lengths framing lumber composite price rose 1.6% from the previous week. This was the fourth consecutive week of increases. …Softwood lumber prices have been especially volatile in recent years largely because of increased demand, rising tariffs, supply-chain bottlenecks and insufficient domestic production. …In addition to narrowly defined framing lumber, products such as plywood, OSB, particleboard, fiberboard, shakes and shingles make up a considerable portion of the total materials (and cost) of a new home. Surveys conducted by Home Innovation Research Labs show that the average new single-family home uses more than 2,200 square feet of softwood plywood, and more than 6,800 of OSB, in addition to roughly 15,000 board feet of framing lumber. …I may take at least a few weeks to a couple of months for builders to see price relief on the order initially reported in the lumber futures or cash markets.

Across the country, many would-be homebuyers wait with bated breath for interest rates to make a meaningful drop before they either purchase their next home or their first house. Persistently elevated rates have made it nearly impossible for lower-income mortgage applicants to qualify for financing. Meanwhile, those who purchased or refinanced a loan while record-low interest rates were available are staying put. Federal Reserve Chairman Jerome Powell announced at the latest Fed meeting that they were not going to raise the federal funds rate, the upper limit of which has been at 5.50% for nearly a year. This means the rate cuts hoped for in June will have to wait until more progress is made on tamping down inflation. The prime rate, which moves in tandem with the federal funds rate, has been unchanged at 8.50% since August. 

Fueled by a lack of existing inventory and pent-up demand, single-family permit growth is occurring across all tracked geographic regions of the nation. The opposite holds true for the multifamily sector, according to the latest findings from the NAHB Home Building Geography Index for the first quarter of 2024. After continued declines in the growth rates of the single-family Index, all markets moved into positive territory for single-family construction. This marks the first time since the first quarter of 2021 for which all regions are showing year-over-year growth. Single-family growth rates declined to lows in the first quarter of 2023, but as lack of existing inventory and pent-up demand started to have a larger effect, single-family construction moved upwards over the year. …Looking at single-family HBGI market shares, small metro – core counties continued to have the largest market share at 28.8%.

Due to tightened monetary policy, the count of open jobs for the economy and construction is declining. This is consistent with a somewhat cooler economy, which is a positive sign for future inflation readings. In April, the number of open jobs for the economy fell to 8.06 million. This is smaller than the 9.90 million estimate reported a year ago. NAHB analysis indicate that this number must fall back below 8 million for the Federal Reserve to feel more comfortable about labor market conditions and their potential impacts on inflation, which means we will be near that range in the coming months. While the Fed intends for higher interest rates to have an impact on the demand-side of the economy, the ultimate solution for the labor shortage will not be found by slowing worker demand, but by recruiting, training and retaining skilled workers. 

There is no question that the housing market is in a gridlock, with homeowners unable or unwilling to move due to low-interest rate mortgages. The need for new construction is one solution to this problem, which could alleviate the housing inventory crisis. At the same time, there is a shortage of inventory, and home prices have jumped, even in a high-interest rate environment, making the dream of homeownership completely out of reach for many. First-time buyers are now in their mid-to-late 30s when they purchase their first property. …So, what happens to those who cannot reach homeownership today? Home builders have seen this data and seen, in turn, an opportunity: built-for-rent. Built-for-rent is the concept of new single-family home construction for the intent of renting. While there has been growth in new home sales and construction activity, multifamily home construction has also grown in recent years.

Real gross domestic product (GDP) increased at an annual rate of 1.3% in the first quarter of 2024, according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2023, real GDP increased 3.4%. …The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a decrease in private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The resilience of demand in the housing market—partially aided by limited resale supply—contributed to strong quarters across the board for public home builders. In the recent round of quarterly earnings reports, many public builders posted record quarterly levels of sales, revenues, and profits per share, results supporting a growth-oriented outlook for 2024. The quarterly results and demographic tailwinds did little to temper growth plans, with many companies reiterating their 10% annual growth targets for closings and community openings. In addition to limited resale supply, large public builders are also benefiting from several competitive advantages over the existing-home market, namely the ability to offer financing incentives. With elevated mortgage rates, rate buydowns remain prevalent in the market, particularly for first-time home buyers. Additionally, the ability for home builders to aid with closing costs and offer design upgrades are resonating with prospective buyers.

Mortgage rates that averaged above 7% since mid-April per Freddie Mac data acted as a drag on new home sales last month. Sales of newly built, single-family homes in April fell 4.7% to a 634,000 seasonally adjusted annual rate from a downwardly revised reading in March, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in April is down 7.7% from a year earlier. …New single-family home inventory in April remained elevated at a level of 480,000, up 12.1% compared to a year ago. This represents a 9.1 months’ supply at the current building pace. A measure near a six months’ supply is considered balanced.

The American Forest & Paper Association (AF&PA) released the 64th Paper Industry Annual Capacity and Fiber Consumption Survey. The report provides detailed data on U.S. paper industry capacity and production compiled by the AF&PA statistics team. U.S. paper and paperboard capacity declined by 1.6% in 2023, to 79.7 million tons. That compares to an average decline of 0.9% per year since 2014. U.S. paper and paperboard production declined 7.2% last year, with declines in all categories except tissue. …Four machines totaling 2.1 million tons of containerboard and packaging paper capacity started up during 2023, all using 100 percent recycled fiber. However, more than 1.7 million tons of capacity, mostly using wood fiber, was permanently removed in 2023 as the industry faced demand weakness from customer destocking and economic headwinds.

According to first quarter 2024 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, median single-family square floor area came in at 2,140 square feet, the lowest reading since the second half of 2009. Average (mean) square footage for new single-family homes registered at 2,343 square feet. Since Great Recession lows, the average size of a new single-family home is now just 1.2% higher at 2,387 square feet, while the median size is about 4.5% higher at 2,170 square feet. Home size rose from 2009 to 2015 as entry-level new construction lost market share. Home size declined between 2016 and 2020 as more starter homes were developed. After a brief increase during the post-COVID building boom, home size is trending lower and will likely continue to do so as housing affordability remains constrained.

NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates a slowing market for custom home building after a recent gain in market share. The subsector’s greater reliance on cash buyers has not shielded it from recent market softening, which in turn is putting downward pressure on home builder sentiment. There were 34,000 total custom building starts during the first quarter of 2024. This marks an almost 3% decline compared to the first quarter of 2023, which runs counter to many of the gains seen in other home building subsectors. Over the last four quarters, custom housing starts totaled 177,000 homes, a a more than 8% decline compared to the prior four quarter total (193,000).

Housing completions have surpassed housing starts. History suggests bad things follow. But what’s happening this time? …Year-to-date in 2024, U.S. multifamily completions are outpacing new starts at the widest levels since 1975. The gap will likely widen further. Completions are at multi-decade highs while starts continue to rapidly plunge due to several headwinds: high rates, flat-to-falling rents for lease-ups (depending on the market), and construction costs often coming in above replacement value. Simply put: It’s very difficult to start new unsubsidized apartment projects right now. Folks on this app often don’t realize that developers do not self-fund their own projects. …So while supply will continue to exceed demand in 2024, keeping downward pressure on rents, you can see how demand could exceed supply again by 2025, which would in turn put upward pressure on rents.

With mortgage rates averaging above 7% for the past four weeks per data from Freddie Mac, builder sentiment posted its first decline since November 2023. Builder confidence in the market for newly built single-family homes was 45 in May, down six points from April, according to the NAHB/Wells Fargo Housing Market Index (HMI). The market has slowed since mortgage rates increased and this has pushed many potential buyers back to the sidelines. A lack of progress on reducing inflation pushed long-term interest rates higher in the first quarter and this is acting as a drag on builder sentiment. …The May HMI survey also revealed that 25% of builders cut home prices to bolster sales in May, ending four months of consecutive declines in this metric. However, the average price reduction in May held steady at 6% for the 11th straight month. 

Both overall and core inflation eased slightly in April amid higher costs for gasoline and shelter. On a year-over-year (YOY) basis, the shelter index rose by 5.5% in April, following a 5.7% increase in March. Despite a slowdown in the YOY increase, shelter costs continue to put upward pressure on inflation, accounting for nearly 70% of the total increase in all items excluding food and energy. This ongoing elevated and uneven inflation is likely to keep the Federal Reserve on hold and delay rate cuts this year. …The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.3% in April on a seasonally adjusted (SA) basis, after an increase of 0.4% in March. It marks the largest monthly increase since June 2009.

New US home construction rose by less than forecast in April and permits for new activity dropped, suggesting the recent rise in mortgage rates is giving builders pause. Housing starts increased 5.7% to a 1.36 million annualized rate after downward revisions to prior months, according to government data released Thursday. The median forecast in a Bloomberg survey of economists called for a 1.42 million rate. Authorized permits for single-family home construction have now dropped for three straight months to the lowest level since August after trending higher toward the end of last year. That may constrain beginning home construction going forward. Building permits for all units, a proxy for future construction, fell 3% to a 1.44 million rate, the lowest since the end of 2022. That mostly reflected a large drop in authorizations for apartment complexes. …The number of completed single-family homes climbed to a 1.09 million annualized rate, the most since November 2022. 

Over the first three months of 2024, the total number of single-family permits issued year-to-date (YTD) nationwide reached 241,311. On a year-over-year (YoY) basis, this is an increase of 25.9% over the March 2023 level of 191,695. Year-to-date ending in March, single-family permits were up in all four regions. The range of permit increase spanned 38.0% in the West to 12.5% in the Northeast. …Between March 2024 YTD and March 2023 YTD, 47 states posted an increase in single-family permits. 

Inputs to residential construction, goods less food and energy, increased for the sixth consecutive month, according to the most recent producer price index (PPI) report published by the U.S. Bureau of Labor Statistics. …The non-seasonally adjusted index increased 0.14% in April after increasing a revised 0.50% in March and 0.47% in February. The index is up 2.77% from April 2023. …The seasonally adjusted PPI for softwood lumber increased 6.20% in April. This was the largest month-over-month increase since January of 2022 when the index shot up 21.56% over the month. From April of 2023, the index was 4.31% lower. …The non-seasonally adjusted PPI for gypsum building materials fell 0.74% in April. …The seasonally adjusted PPI for ready-mix concrete fell for the first time in four months, down 0.27% in April. …The non-seasonally adjusted PPI for steel mill products fell for the second straight month, down 2.67% for April after an 8.10% decline in March.