U.S. Economy Ends 2023 With Surprisingly Strong Growth

2024-01-25T12:15:53-06:00

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 (PCE) Price Index, which measures inflation (or deflation) 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 (BEA), real gross domestic product (GDP) 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. This quarter’s growth was higher than NAHB’s forecast of a 0.9% increase. For the full year, real GDP increased 2.5% in 2023, up from a 1.9% increase in 2022, and slightly better than NAHB’s forecast of 2.4%. This quarter’s increase in real GDP reflected increases in consumer spending, exports, government spending, and private domestic investment. Imports, which are a subtraction in the calculation of GDP, increased 1.9%. Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 2.8% in the fourth quarter, reflecting increases in both services and goods. While expenditures on services increased 2.4% at an annual rate, goods spending increased 3.8% at an annual rate, led by other nondurable goods (+5.1%) and recreational goods and vehicles (+10.9%). Both federal government spending and state and local government spending increased in the fourth quarter. The increase in state and local government spending primarily reflected increases in compensation of state and local government employees and investment in structures, while the increase in federal government spending was led by nondefense spending. In the fourth quarter, exports rose 6.3%, reflecting increases in both goods and services. Nonresidential fixed investment increased 1.9% in the fourth quarter, following a 1.4% increase in the third quarter. The increase in nonresidential fixed investment reflected increases in intellectual property products (2.1%), structures (3.2%), and equipment (1.0%). Additionally, residential fixed investment (RFI) rose 1.1% in the fourth quarter, down from a 6.7% increase in the third quarter. This is the second straight gain after nine consecutive quarters of declines. Within residential fixed investment, single-family structures rose 11.6% at an annual rate, multifamily structures declined 1.0%, and improvements rose 5.5%. ‹ New Home Sales Bounce Back in December on Lower Mortgage RatesHousing Share of GDP Inched up In the Fourth Quarter of 2023 ›Tags: economics, gdp, inflation, macroeconomics, macroeconomy, residential fixed investment

U.S. Economy Ends 2023 With Surprisingly Strong Growth2024-01-25T12:15:53-06:00

Pandemic Silver Lining: Young Adults Moving Out of Parental Homes

2024-01-19T08:15:15-06:00

By Natalia Siniavskaia on January 19, 2024 • Despite record high inflation rates, rising interest rates, and worsening housing affordability, young adults continued the post-pandemic trend of moving out of parental homes in 2022. The share of young adults ages 25-34 living with parents or parents-in-law declined and now stands at 19.1%, according to NAHB’s analysis of the 2022 American Community Survey (ACS) Public Use Microdata Sample (PUMS). This percentage is a decade low and a welcome continuation of the post-pandemic trend towards rising independent living by adults ages 25-34. Traditionally, young adults ages 25 to 34 make up around half of all first-time homebuyers. Consequently, the number and share of young adults in this age group that choose to stay with their parents or parents-in-law has profound implications for household formation, housing demand, and the housing market. The share of adults ages 25 to 34 living with parents reached a peak of 22% in 2017-2018. Even though an almost three percentage point drop in the share since then is a welcome development that the housing market has been waiting for, the share remains elevated by historical standards, with almost one in five young adults in parental homes. Two decades ago, less than 12% of young adults ages 25 to 34, or 4.6 million, lived with parents. The current share of 19.1% translates into 8.5 million of young adults living in homes of their parents or parents-in-law. Stacking our estimates of the share of young adults living with parents against NAHB/Wells Fargo’s HOI data reveals that until the pandemic, the rising share of young adults living with parents had been associated with worsening affordability. Conversely, improving housing affordability, had been linked with a declining share of 25–34-year-old adults continuing to live in parental homes.  The strong negative correlation disappeared in the post-pandemic world, with young adults continuing to move out of parental homes despite worsening housing affordability and rising cost of independent living. The “excess” savings accumulated early in the lockdown stages of the pandemic, when spending opportunities were limited, undoubtedly helped finance the move-out trend. Will the trend continue once young adults drain their “excess” savings? The NAHB forecast highlights strong labor market conditions and expectations for receding mortgage rates that should improve housing affordability in the near future. Combined with the desire for more spacious, independent living heightened by the COVID-19 pandemic, these factors should help sustain the trend towards rising independent living of young adults even after their excess savings are depleted.  ‹ Single-Family Starts Down in December but Post Solid ShowingTags: first-time buyers, headship rates, housing, young adults living with parents

Pandemic Silver Lining: Young Adults Moving Out of Parental Homes2024-01-19T08:15:15-06:00

Modest Increase in Mortgage Activity to Start 2024

2024-01-10T10:29:12-06:00

By Jesse Wade on January 10, 2024 • Per the Mortgage Bankers Association’s (MBA) survey through the week ending January 5th, total mortgage activity increased 9.9% from the previous week, and the average 30-year fixed-rate mortgage (FRM) rate rose five basis points to 6.81%. After the total mortgage activity index fell 10.7% in the last week of December, it bounced back in the first week of the year. The data includes an adjustment for New Year’s. The Market Composite Index, a measure of mortgage loan application volume, rose by 9.9% on a seasonally adjusted (SA) basis from one week earlier. Purchasing activity increased 5.6% and refinancing activity increased 18.8% week-over-week. Purchasing activity was 6.8% lower than one year ago, and refinancing activity was up 30.2% from the same week one year ago. Despite the 30-year FRM rate increasing over the week, both refinancing and purchasing activity saw small increases as rates start to settle around seven percent, which is significantly lower than the 2023 peak rate of 7.9% in October. The refinance share of mortgage activity rose from 36.3% to 38.3% over the week, while the adjustable-rate mortgage (ARM) share of activity fell from 6.0% to 5.4%. The average loan size for purchases was $402,900 at the start of January, down from $408,600 over the month of December. The average loan size for refinancing increased from $272,200 in December to $274,100 in January. The average loan size for an ARM was down at the start of January to $862,600 while the average loan size for a FRM rose to $324,400. ‹ Consumer Credit Outstanding Climbs as Credit Card Debt SurgesTags: finance, interest rates, mba, mortgage applications, mortgage bankers association, mortgage lending, refinancing

Modest Increase in Mortgage Activity to Start 20242024-01-10T10:29:12-06:00

Residential Building Wages Continue to Increase

2024-01-08T10:15:54-06:00

By Jing Fu on January 8, 2024 • The year-over-year (YOY) growth rate for residential building worker wages decelerated to 0.6% in June 2023. Over the past five months, wage growth accelerated moderately and reached 4.0% in November. Overall, average hourly earnings for residential building workers* increased at a relatively slower pace in the past year, compared to the peak rate of 8% in October 2021. According to the Bureau of Labor Statistics (BLS) report, average hourly earnings (AHE) for residential building workers was $30.71 per hour in November 2023, increasing 4.0% from $29.52 per hour a year ago. This was 14.1% higher than the manufacturing’s average hourly earnings of $26.91 per hour, 8.9% higher than transportation and warehousing ($28.19 per hour), and 12.0% lower than mining and logging ($34.91 per hour). Wage growth has been below 4.0% in the past twelve months. November’s acceleration in wage growth reflects an imbalance in the construction labor market. Demand for construction labor remained strong. Indeed, the construction labor market moved in the opposite direction of the overall economy. As mentioned in the latest JOLTS blog, the number of open construction jobs rose to 459,000 in November, as the count of total job openings for the economy declined to 8.8 million. Note: * Data used in this post relate to production and nonsupervisory workers in the residential building industry. This group accounts for approximately two-thirds of the total employment of the residential building industry. ‹ Solid Job Growth in 2023Tags: average hourly earnings, labor market, residential building, wages

Residential Building Wages Continue to Increase2024-01-08T10:15:54-06:00

Solid Job Growth in 2023

2024-01-05T12:33:52-06:00

December’s jobs report concludes another solid year of job hiring in 2023. In December, total nonfarm payroll employment increased by 216,000, and the unemployment rate held steady at 3.7% for the second month. Job gains moderated in 2023 with an average 225,000 monthly employment growth but remained strong. In December, wage growth accelerated to a 4.1% year-over-year (YOY) growth rate, up from 4.0% in November and down 0.7 percentage points from a year ago. The total nonfarm payroll employment increase of 216,000 in December was followed by two previous months of revisions, as reported in the Employment Situation Summary. The monthly change in total nonfarm payroll employment for November was revised down by 26,000, from +199,000 to +173,000, while October was revised down by 45,000 from +150,000 to +105,000. Combined, the revisions took the original estimates down by 71,000. Despite restrictive monetary policy, more than 6 million jobs have been created since March 2022, when the Fed enacted the first interest rate hike of this cycle. In 2023, 2.7 million jobs were created, and monthly employment growth averaged 225,000 per month, less than the average monthly growth of 399,000 in 2022 and 606,000 in 2021. The unemployment rate was unchanged at 3.7% in December as the labor force participation rate edged down. The number of unemployed persons was essentially unchanged, while the number of employed persons decreased by 683,000. The labor force participation rate, the proportion of the population either looking for a job or already holding a job, decreased by 0.3 percentage points to 62.5%, marking its lowest rate since February 2023. December’s decrease in the labor force participation rate reflects the decrease in the number of persons in the labor force (-676,000) and the increase in the number of persons not in the labor force (+845,000). Moreover, the labor force participation rate for people  aged between 25 and 54 edged down to 83.2%. While the overall labor force participation rate is still below its pre-pandemic levels at the beginning of 2020, the rate for people  aged between 25 and 54 exceeds the pre-pandemic level of 83.1%. The government (+52,000), health care (+38,000), social assistance (+21,000), and construction (+17,000) sectors led December’s job gains, while transportation and warehousing shed 23,000 jobs in December. Employment in the overall construction sector increased by 17,000 in December, following a 6,000 gain in November. While residential construction added 5,500 jobs, non-residential construction employment added 11,900 jobs for the month. Residential construction employment now stands at 3.3 million in December, broken down into 936,000 builders and 2.4 million residential specialty trade contractors. The 6-month moving average of job gains for residential construction was 4,000 a month. Over the last 12 months, home builders and remodelers added 40,100 jobs on a net basis. Since the low point following the Great Recession, residential construction has gained 1,316,800 positions. In December, the unemployment rate for construction workers dropped by 1.2 percentage points to 4.5% on a seasonally adjusted basis. The unemployment rate for construction workers remained at a relatively lower level, after reaching 14.2% in April 2020, due to the housing demand impact of the COVID-19 pandemic. ‹ Employment Situation in November: State-Level AnalysisTags: employment, labor force, labor force participation rate, residential construction employment

Solid Job Growth in 20232024-01-05T12:33:52-06:00

Existing Home Sales Unexpectedly Rise Amid High Mortgage Rates

2023-12-20T11:22:47-06:00

Existing home sales rose in November from a 13-year low, ending a five-month decline, according to the National Association of Realtors (NAR). This increase in sales was driven by a strong gain in the South, where homes are considered more affordable. 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. At the current sales rate, November unsold inventory sits at a 3.5-months’ supply, down from 3.6-months last month and 3.3-months a year ago. This inventory level remains very low compared to balanced market conditions (4.5 to 6 months’ supply) and illustrates the long-run need for more home construction. Homes stayed on the market for an average of 25 days in November, up from 23 days in October 2023 and 24 days in November 2022. In November, 62% of homes sold were on the market in less than a month. The November all-cash sales share was 27% of transactions, down from 29% in October but up from 26% a year ago. All-cash buyers are less affected by changes in interest rates. The November median sales price of all existing homes was $387,600, up 4.0% from last year. The median condominium/co-op price in November was up 8.6% from a year ago at $350,100. Existing home sales in November were varied across the four major regions. Sales in the Midwest and South increased 1.1% and 4.7% in November, while sales in the Northeast and West fell 2.1% and 7.2%. However, on a year-over-year basis, all four regions continued to see a decline in sales, ranging from 4.3% in the South to 13.0% in the Northeast. The Pending Home Sales Index (PHSI) is a forward-looking indicator based on signed contracts. The PHSI fell 1.5% from 72.5 to 71.4 in October, the lowest level since the index started in 2001. On a year-over-year basis, pending sales were 8.5% lower than a year ago per the NAR data. ‹ Single-Family Starts Surge on Falling Interest RatesTags: Existing Home Sales, NAR

Existing Home Sales Unexpectedly Rise Amid High Mortgage Rates2023-12-20T11:22:47-06:00

Immigrant Share in Construction Highest on Record

2023-12-18T08:16:51-06:00

After years of being unable to ratchet up the number of new workers coming from outside the U.S. to help with persistent labor shortages, the construction industry reversed this trend and managed to attract over 90,000 new immigrant workers, levels unseen since the housing boom of 2005-2006. Native-born workers remain reluctant and continue joining the industry at a slower rate, with their total count remaining over half a million below the record levels of the housing boom of the mid-2000s. As a result, the share of immigrants in construction reached a new historic high of 24.7%, according to the most recent 2022 American Community Survey (ACS). In construction trades, the share of immigrants is even higher, exceeding 31%. The latest ACS data show that 11.8 million workers, including self-employed and temporarily unemployed, comprised the construction workforce in 2022. Out of these, 8.9 million were native-born, and 2.9 million were foreign-born, the highest number of immigrant workers in construction ever recorded by the ACS. The construction labor force, including both native- and foreign-born workers, now exceeds the pre-pandemic levels but remains smaller than during the housing boom of the mid-2000s. As the chart above illustrates, it is the native-born workers that remain missing. Compared to the peak employment levels of 2006, construction is short 525,000 native-born workers and new immigrants only partially close the gap. Due to the data collection issues during the early pandemic lockdown stages, we do not have reliable estimates for 2020 and omit these in the charts. Typically, the annual flow of new immigrant workers into construction is highly responsive to the changing labor demand. The number of newly arrived immigrants in construction rises rapidly when housing starts are rising and declines precipitously when the housing industry is contracting. The response of immigration is normally quite rapid, occurring in the same year as a change in the single-family construction activity. Statistically, the link is captured by high correlation between the annual flow of new immigrants into construction and measures of new home construction, especially new single-family starts.  This connection broke in 2017 when NAHB’s estimates showed a surprising drop in the number of new immigrants in construction despite steady gains in housing starts. This link was severed further by pandemic-triggered lockdowns and restrictions on travel and border crossings, drastically interrupting the flow of new immigrant workers. The most recent data show that 2021 marked a new milestone with the flow of immigrants into construction returning to typical levels driven by home building activity. The overall rising trend as well as the noticeable uptick in the share of immigrants since 2021, are consistent with but slightly greater in construction compared to the changes observed in the rest of the US economy. Excluding construction, where the reliance on foreign-born workers is greater, the share of immigrants in the US labor force increased from just over 14% in 2004 to 16.6% in 2018, the highest level recorded by the ACS. The share of immigrants stabilized at these record high levels with no further increases in the post-pandemic market, returning to 16.6% in 2022. ‹ Single-Family Permits Down in October 2023Tags: economics, home building, housing, immigrant workers, immigrants in construction, labor shortages, single family starts, single-family

Immigrant Share in Construction Highest on Record2023-12-18T08:16:51-06:00

Share of Bedrooms in New Single-Family Homes in 2022

2023-12-14T07:23:07-06:00

By Jesse Wade on December 14, 2023 • The Census Bureau’s latest Survey of Construction (SOC) shows small changes in the share of number of bedrooms for new single-family homes in 2022 compared with the previous year. The current estimates indicate the share of new single-family homes with two bedrooms or less is 11.0%, three bedrooms, the largest share, had a share of 42.8%, four bedrooms make up 35.7% of new single-family homes, and five bedrooms or more had a share of 10.5% in 2022. Figure 1 shows the changes in the share of new single-family homes by number of bedrooms dating back to 2005. For the third straight year, the share of three-bedroom single-family homes declined, marking the lowest share in the series. The share of four-bedroom single-family homes also fell somewhat from last year. The share of new single-family homes with two bedrooms or less rose back up in 2022 to a share higher than homes with five bedrooms or more. Figure 2 below examines the difference between US Census divisions by share of new single-family homes with four or more bedrooms. The East North Central Census division had the lowest share of new-single family homes having four or more bedrooms at 29.4%. The highest share of new single-family homes built with four or more bedrooms was 51.7% which was in the South Atlantic Census division. Depending on a new single-family homes purpose of construction (Built-for-Sale, Contractor-built, Owner-built, Built-for-Rent), the number of bedrooms in the home greatly varied in 2022. Most of this variation comes from the two-bedroom or less homes and four-bedrooms homes. The share of new single-family homes with two bedrooms or less ranges from 5.4% of homes built-for-sale to 42.9% of homes built-for-rent. For the share of new single-family homes with three bedrooms, it ranges from 42.1% of built-for-sale homes to 46.7% of owner-built homes, displaying relatively little change across purpose of construction compared to the other number of bedrooms. The share of new single-family homes with four-bedrooms ranges from 12.0% of built-for-rent homes to 40.6% of built-for-sale homes. The last group, the share of new single-family homes with five-bedrooms or more, ranged from 2.3% in built-for-rent homes to 11.9% in built-for-sale homes in 2022. Single-family homes that were built-for-rent typically had far fewer bedrooms when compared to other purposes of construction. Single-family homes built-for-sale were three times more likely to have four-bedrooms than homes that were built-for-rent. ‹ The Fed Projects Lower Rates in 2024Tags: bedrooms, new homes, Single-Family homes, SOC, survey of construction

Share of Bedrooms in New Single-Family Homes in 20222023-12-14T07:23:07-06:00

Largest Increase in Mortgage Activity Since March

2023-12-13T10:16:06-06:00

By Jesse Wade on December 13, 2023 • Per the Mortgage Bankers Association’s (MBA) survey through the week ending December 8th, total mortgage activity increased 7.4% from the previous week, and the average 30-year fixed-rate mortgage (FRM) rate fell 10 basis points to 7.07%. The FRM rate has decreased by 54 basis points over the past month. The Market Composite Index, a measure of mortgage loan application volume, rose by 7.4% on a seasonally adjusted (SA) basis from one week earlier. Purchasing activity increased 3.5%, and refinancing activity increased 19.4% week-over-week. The market composite index increase over the week was the largest since the first week of March. Despite this, the index is still 7.7% lower than one year ago. Purchasing activity was 18.1% lower than last year and refinancing activity, for a third consecutive week, increased from a year ago at 27.2%. Buyers continue to struggle with a lack of existing inventory despite rates falling significantly over the past month. The refinance share of mortgage activity rose from 34.7% to 39.2% over the week while the adjustable-rate mortgage (ARM) share of activity fell from 7.4% from 6.3%. The average loan size for purchases was $396,500 at the start of December, down from $406,600 in November. Conversely, the average loan size for refinancing increased from $245,900 to $251,000. Lastly, the average loan size for an ARM was up at start of December to $809,200 while the average loan size for a FRM fell to $309,100, its lowest level since April 2021. ‹ Inflation Slows While Housing Costs Remain StickyTags: finance, interest rates, mba, mortgage applications, mortgage bankers association, mortgage lending, refinancing

Largest Increase in Mortgage Activity Since March2023-12-13T10:16:06-06:00

Household Real Estate Asset Growth Continues in the Third Quarter of 2023

2023-12-11T08:22:28-06:00

By Jesse Wade on December 11, 2023 • According to the 2023 third quarter release of the Federal Reserve Z.1 Financial Accounts of the United States, household real estate assets grew for the second consecutive quarter. The continued lack of existing for-sale inventory has contributed to the growth in households’ real estate assets. The level of household real estate assets increased by $510.25 billion from $45.03 trillion in the second quarter of 2023 to $45.54 trillion in the third quarter of 2023, a 1.33% increase. While the third quarter percentage change is smaller on a quarter-over-quarter basis, 1.33% compared to 5.86%, the year-over-year percent change in the third quarter is significantly higher than the second. Between the third quarter of 2023 and 2022, household real estate assets increased 4.65% on a year-over-year basis while the second quarter change between 2023 and 2022 was marginal at 0.47%. Last year, in the third quarter of 2022, real estate assets for households were falling from the second quarter peak as home prices were declining. Fast forward to today and the market value for real estate has seen large increases since the start of the year due to the lack of housing supply. Real estate secured liabilities of households’ balance sheets, i.e., mortgages, home equity loans, and HELOCs, increased over the third quarter from $12.84 trillion to $12.93 trillion, a 0.66% quarterly increase. Year-over-year, real estate liabilities have increased 3.10% from $12.54 trillion in the third quarter of 2022. The year-over-year growth of real estate liabilities has fallen from 9.88% in the first quarter of 2022 but remains positive despite limited mortgage activity. Aggregate owners’ equity (i.e., the difference between homeowners’ real estate assets and liabilities) rose from $32.19 trillion to $32.62 trillion, representing 71.62% of all owner-occupied household real estate. Owners’ equity share of real estate assets remained above 70% for the seventh consecutive quarter. ‹ Job Growth Remains Moderate in NovemberTags: home equity, homeowner equity, household balance sheets, household debt, market value, mortgage debt, residential real estate

Household Real Estate Asset Growth Continues in the Third Quarter of 20232023-12-11T08:22:28-06:00

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