Category Archives: Finance & Economics

US new-home construction sank at the start of the year by the most since the onset of the pandemic, indicating the recovery in the housing market will be gradual as many buyers await a further decline in mortgage rates. Residential starts decreased 14.8% last month to a 1.3 million annualized rate, after an upward revision to the prior month, government data showed Friday. Multifamily home construction plummeted by more than 35% after surging in the prior month, while single-family groundbreakings also slowed. The headline figure was the slowest pace in five months. “The monthly housing starts numbers are extremely noisy and prone to revisions, but the bigger picture is that single-family starts are trending higher, lagging the drop in mortgage rates towards the end of last year, while multi-family starts are trending lower, lagging the rollover in rent inflation,” said Kieran Clancy at Pantheon Macroeconomics. Building permits, a proxy for future construction, decreased to a 1.5 million rate. 

Expectations that mortgage rates will continue to moderate in the coming months, the prospect of future rate cuts by the Federal Reserve later this year, and a protracted lack of existing inventory helped provide a boost to builder sentiment for the third straight month. Builder confidence in the market for newly built single-family homes climbed four points to 48 in February, according to the NAHB)/Wells Fargo Housing Market Index (HMI). This is the highest level since August 2023. …All three of the major HMI indices posted gains in February. The HMI index charting current sales conditions increased four points to 52, the component measuring sales expectations in the next six months rose three points to 60 and the component gauging traffic of prospective buyers increased four points to 33.

Consumer prices picked up again in January while core prices remained elevated, especially housing costs. Despite a slowdown in the year-over-year increase, shelter costs continue to put upward pressure on inflation, accounting for over two-thirds of the total increase in all items excluding food and energy. This hotter-than-expected report will almost certainly delay Fed rate cuts until the second half of the year. …Additional housing supply is the primary solution to tame housing inflation. …Further tightening of monetary policy would hurt housing supply because it would increase the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise despite Fed policy tightening. Nonetheless, the NAHB forecast expects to see shelter costs decline further in the coming months. …In January, the index for shelter (+0.6%) continued to be the largest contributor to the monthly increase in the core CPI.

US consumer prices rose more than expected in January, according to the latest data from the Bureau of Labor Statistics released Tuesday morning. The Consumer Price Index (CPI) rose 0.3% over the previous month and 3.1% over the prior year in January, slightly higher than December’s 0.2% month-over-month increase but a deceleration from December’s 3.4% annual gain. Both measures were higher compared to economist forecasts of a 0.2% month-over-month increase and a 2.9% annual increase, according to data from Bloomberg. On a “core” basis, which strips out the more volatile costs of food and gas, prices in January climbed 0.4% over the prior month and 3.9% over last year. Investors were closely watching the print for clues about when the Federal Reserve will begin cutting interest rates. After the data’s release, markets priced in a 94% chance the central bank will hold rates steady at its meeting next month, up from 84% on Monday.

The U.S. exported 1.01 million metric tons of wood pellets in December, according to data released by the USDA on Feb. 7. Total exports for the full year reached 9.54 million metric tons. The 1.01 million metric tons of wood pellets exported in December was up when compared to both the 655,649.2 metric tons of exports reported for the previous month. The U.S. exported wood pellets to approximately 16 countries in December. The U.K. was the top destination for U.S. wood pellet exports, followed by Japan and Denmark. The value of U.S. wood pellet exports reached $181.34 million in December, up from $116.84 million in November and $157.95 million in December of the previous year. Total wood pellet exports for 2023 reached 9.54 million metric tons at value of $1.75 billion, compared to 9.01 million metric tons exported in 2022 at a value of $1.56 billion. 

Mortgage rates that hit more than a 20-year high, coupled with elevated construction costs and excessive regulatory costs, left housing affordability in the fourth quarter of 2023 virtually unchanged from the previous quarter and holding near its lowest level in more than a decade. According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), just 37.7% of new and existing homes sold between the beginning of October and end of December were affordable to families earning the U.S. median income of $96,300. This is nearly identical to the 37.4% posted in the third quarter of last year, which was the lowest reading since NAHB began tracking affordability on a consistent basis in 2012. 

WASHINGTON, DC – The Fannie Mae Home Purchase Sentiment Index® increased 3.5 points in January to 70.7, its highest level since March 2022, due primarily to increased consumer confidence in job security and another significant jump in the share of consumers expecting mortgage rates to decrease. In January, 82% of consumers indicated that they are not concerned about losing their job in the next 12 months, up from 75% last month. Additionally, an all-time survey-high 36% of respondents indicated that they expect mortgage rates to go down in the next 12 months, while 28% expect them to go up, and 35% expect rates to remain the same. However, consumer perceptions of homebuying conditions remain overwhelmingly pessimistic, with only 17% of consumers indicating it’s a good time to buy a home. Overall, the full index is up 9.1 points year over year.

NEW YORK — Lumber is a critical component in housing construction, and recent price action has started to weaken following a steady ascent since November. That rise in lumber prices coincided almost exactly with the decline in long-term Treasury yields, which has brought mortgage rates back down. In turn, this has sparked a renewed sense of optimism within the housing sector. However, the question remains: Is this optimism well-founded? Or is it fleeting sentiment set against a backdrop of broader economic uncertainties? …While the slow and steady ascent of lumber prices and the decline in mortgage rates offer a beacon of hope for the housing sector, investors must ground this optimism in the reality of persisting challenges. Risk-off conditions could soon present themselves yet again for a tail event in the stock market.

The recycled-box rally is still going strong. Prices for old corrugated containers, or OCC, have been climbing as several newly opened mills vie for old boxes to turn into new packaging. In the Southeast, prices for OCC rose 6.6% in January, according to TTOBMA, a pulp and paper consulting firm that tracks sales and prices. The hunt for old boxes has spilled into adjacent markets, pushing up the prices mills paid for OCC in the Midwest and central Canada roughly 14% last month, the firm said. [END]

Paper mills at home and abroad are gobbling up America’s recycled cardboard, driving up prices for corrugated containers that they pulp and make into new packaging. The price of old corrugated containers, or OCC, surged during the pandemic e-commerce boom and then came crashing down in 2022. Over the past year, though, OCC prices have rebounded, more than tripling in some parts of the country. The latest rise is being driven by the opening of several new mills that need used cardboard to make fresh containerboard for corrugated shipping boxes and paperboard, which is folded into cereal boxes and coffee cups. Mills are vying for recycled boxes at a time when there are fewer available. …Meanwhile, the Red Sea conflict has cut off the route that Europe’s old boxes take to mills in Asia and has sent the region’s OCC buyers looking to the U.S. for their raw material. [to access the full story a WSJ subscription is required]

The Federal Reserve’s monetary policy committee held the federal funds rate constant at a top target of 5.5% at the conclusion of its January meeting. The Fed will continue to reduce its balance sheet holdings of Treasuries and mortgage-backed securities as part of quantitative tightening and balance sheet normalization. Marking a fourth consecutive meeting holding the federal funds rate constant, the Fed is now setting the ground for rate cuts later in 2024. With inflation data moderating (although still elevated) and limited slowing of labor market conditions, markets and some analysts are expecting a federal funds rate cut as soon as March. In contrast, NAHB’s forecast includes rate cuts beginning no earlier than June due to ongoing strong economic conditions. Today’s decision does not alter this outlook.

The Census Bureau’s Housing Vacancy Survey reported the U.S. homeownership rate declined to 65.7% in the last quarter of 2023, amid persistently tight housing supply and elevated mortgage interest rates. This is 0.3 percentage points lower from the third quarter reading (66%). Compared to the peak of 69.2% in 2004, the homeownership rate is 3.5 percentage points lower and remains below the 25-year average rate of 66.4% amid a multidecade low for housing affordability conditions. The homeownership rate for householders aged less than 35 decreased to 38.1% in the fourth quarter of 2023, as affordability is declining for first-time homebuyers amidst elevated mortgage interest rates and tight housing supply. This age group, particularly sensitive to mortgage rates and the inventory of entry-level homes, saw the largest decline among all age categories.

The Conference Board Consumer Confidence Index® rose in January to 114.8 (1985=100), up from a revised 108.0 in December. The reading was the highest since December 2021, and marked the third straight monthly increase. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—surged to 161.3 (1985=100) from 147.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—improved to 83.8 (1985=100) in January, up from a revised reading of 81.9 in December. “January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, Chief Economist at The Conference Board. “The gain was seen across all age groups, but largest for consumers 55 and over. 

WASHINGTON — The Federal Reserve will likely move closer Wednesday to cutting its key interest rate after nearly two years of hikes that were intended to fight the worst inflation in decades. Yet it may not provide much of a hint about when — or how fast — it will do so. Though Fed officials are expected to cut rates within the next few months, they’ll likely signal Wednesday that they expect to wait until they’re confident that inflation, which has tumbled from its peak, is reliably moving to their 2% target. The central bank’s benchmark rate influences the cost of most consumer and business loans, and companies, investors and individuals have been eager for the central bank to ease the cost of borrowing. …Most Fed watchers think the central bank’s first rate reduction will occur in May or June.

The U.S. economy grew at a surprisingly strong pace in the fourth quarter, mainly fueled by resilient consumer spending. However, the fourth quarter data from the GDP report suggests that inflation is cooling. The GDP price index rose 1.5% for the fourth quarter, down from a 3.3% increase in the third quarter. The Personal Consumption Expenditures Price Index, which measures inflation across various consumer expenses and reflects changes in consumer behavior, rose 1.7% in the fourth quarter, down from a 2.6% increase in the third quarter. According to the “advance” estimate released by the Bureau of Economic Analysis, real gross domestic product increased at an annual rate of 3.3% in the fourth quarter of 2023, following a 4.9% gain in the third quarter. It marks the sixth consecutive quarter of growth.

Falling interest rates in the closing weeks of 2023 helped to bring buyers off the sidelines and provide a boost for new home sales. Sales of newly built, single-family homes in December increased 8.0% to a 664,000 seasonally adjusted annual rate from an upwardly revised reading in November, 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 December is up 4.4% from a year earlier. On an annual basis, new home sales totaled 668,000 in 2023, up 4.2% from the 2022 figure of 641,000. …New single-family home inventory in December remained elevated at a level of 453,000, up 0.4% compared to a year earlier. This represents an 8.2 months’ supply at the current building pace. A measure near a 6 months’ supply is considered balanced.