Residential Building Material Price Increase to Start 2024

2024-02-16T12:23:16-06:00

By Jesse Wade on February 16, 2024 • The latest Producer Price Index, reported by U.S. Bureau of Labor Statistics, indicated that inputs to residential construction, goods less foods and energy (residential building materials, not seasonally adjusted) increased 1.28% between December 2023 and January 2024. This was the largest monthly change for the index since March of 2022, when it increased by 2.07%. The year-over-year change of the index was 1.91%, the largest yearly increase since February of 2023. The seasonally adjusted Producer Price Index for final demand goods decreased 0.2% in January, a fourth consecutive decrease for the index. The PPI for final demand energy decreased 1.7%, while final demand goods less foods and energy increased 0.3% in January. On a yearly basis, between January 2023 and 2024, the PPI for final demand goods was down 1.7%, with final demand energy down 9.8%, and final demand goods less foods and energy up 1.6%. The seasonally adjusted PPI for softwood lumber continued to fall as it decreased for the 6th consecutive month, down 1.82% in January. Over the past year, softwood lumber prices have been down 8.98%. Earlier this month, the U.S. Department of Commerce signaled plans to increase tariffs on Canadian softwood lumber from 8.05% to 13.86% this summer or early fall. The not seasonally adjusted PPI for gypsum building materials did not change over the month of January, but was 1.92% lower than last year. Ready-mix concrete seasonally adjusted prices increased in January 1.37% after falling 1.27% in December. On a yearly basis, ready-mix concrete was up 6.88% from January 2023. The not seasonally adjusted PPI for steel mill products continued to rise for the second straight month, up 5.4% in January. Over the year, steel mill products are up 4.39%. ‹ Best Quarter for Townhouse Construction Since 2006Tags: construction costs, inflation, lumber prices, ppi, producer price index, producer prices, ready-mix concrete, softwood lumber, steel

Residential Building Material Price Increase to Start 20242024-02-16T12:23:16-06:00

Inflation Remains Sticky due to Persistent Housing Costs

2024-02-13T11:15:21-06:00

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. The Fed’s ability to address rising housing costs is limited because increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are constrained. In fact, 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.  This is supported by real-time data from private data providers that indicate a cooling in rent growth. With respect to the aggregate data, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.3% in January on a seasonally adjusted basis, after rising 0.2% in December. The price index for a broad set of energy sources fell by 0.9% in January as the decline in gasoline index (-3.3%) and fuel oil index (-4.5%) more than offset the increase in the natural gas index (+2.0%) and electricity index (+1.2%). Meanwhile, the food index and the food at home index both increased by 0.4% in January. Excluding the volatile food and energy components, the “core” CPI rose by 0.4% in January, after rising 0.3% in December. In January, the index for shelter (+0.6%) continued to be the largest contributor to the monthly increase in the core CPI. Among other top contributors that rose in January include indexes for motor vehicle insurance (+1.4%) and medical care (+0.5%). Meanwhile, the top contributors that experienced a decline in January include indexes for used cars and trucks (-3.4%) and apparel (-0.7%). The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.6% rise in January, following an increase of 0.4% in December. The indexes for owners’ equivalent rent (OER) increased by 0.6% and rent of primary residence (RPR) increased by 0.4% over the month. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a non-seasonally adjusted basis, the CPI rose by 3.1% in January, following a 3.4% increase in December. The “core” CPI increased by 3.9% over the past twelve months, the same increase for the 12-months ending December. This was the slowest annual gain since May 2021. Over the past twelve months, the food index rose by 2.7% while the energy index fell by 2.0%. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index was unchanged in January. ‹ Modest Improvements in Demand, Lending Conditions for Real Estate Loans During Q4 2023Tags: BLS, cpi, inflation

Inflation Remains Sticky due to Persistent Housing Costs2024-02-13T11:15:21-06:00

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

Builders’ Top Challenges for 2024

2024-01-24T12:17:19-06:00

According to the January 2024 survey for the NAHB/Wells Fargo Housing Market Index, high interest rates were a significant issue for 90% of builders in 2023, and 77% expect them to be a problem in 2024. The second most widespread problem in 2023 was rising inflation in US Economy, cited by 83% of builders, with 52% expecting it to be a problem in 2024. The cost and availability of labor was a significant problem to only 13% of builders in 2011. That share has increased significantly over the years, peaking at 87% in 2019.  Due to the pandemic, fewer builders reported this problem in 2020 (65%), but the share rose again in 2021 (82%) and 2022 (85%).  Not surprisingly, given the increase in construction job openings, the share eased slightly in 2023 to 74%.  A similar 75% expect the cost and availability of labor to remain a significant issue in 2024.In 2011, building materials prices was a significant problem to 33% of builders.  The share has fluctuated over the years, from a low of 42% in 2015 to a peak of 96% in 2020, 2021, and 2022.  The slowdown in single-family construction in 2023 made this less of a problem for builders last year, as ‘only’ 63% reported it as a significant issue.  Fewer expect it to face it in 2024 (58%). Compared to the supply-side problems of materials and labor, problems attracting buyers have not been as widespread, but builders expect many of them to become more of a problem in 2024. Buyers expecting prices or interest rates to decline if they wait was a significant problem for 71% of builders in 2023, with 77% expecting it to be an issue in 2024.  Negative media reports making buyers cautious was reported as a significant issue by 56% of builders in 2023, and 54% expect this problem in 2024. Concern about employment/economic situation was another buyer issue for 48% of builders in 2023, but 55% anticipate this issue in 2024. Gridlock/uncertainty in Washington making buyers cautious was a significant problem for 42% of builders in 2023, but a larger 54% expect it to be a problem in 2024.  Less than 30% of builders experienced problems in 2023 with buyers being unable to sell existing homes, potential buyers putting off purchase due to student debt, and competition from distressed sales/foreclosures. For additional details, including a complete history for each reported and expected problem listed in the survey, please consult the full survey report. ‹ Employment Situation in December: State-Level AnalysisTags: builders, Building Materials, construction, hmi, home building, housing trends report, inflation, interest rates, labor, single-family

Builders’ Top Challenges for 20242024-01-24T12:17:19-06:00

Housing Costs Persist in Driving Inflation Higher

2024-01-11T11:17:00-06:00

Consumer prices rose again in December, driven by higher energy prices and sticky housing costs. Despite the increase, overall inflation has moderated by nearly half, declining from 6.5% in 2022 to 3.4% by the end of 2023. However, even after peaking in March 2023, 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. The Fed’s ability to address rising housing costs is limited because increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are constrained. In fact, 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.  This is supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.3% in December on a seasonally adjusted basis, after rising 0.1% in November. The price index for a broad set of energy sources rose by 0.4% in December as the increase in gasoline index (+0.2%) and electricity index (+1.3%) more than offset the decline in the natural gas index (-0.4%). Meanwhile, the food index increased by 0.2% in December with the food at home index rising 0.1%. Excluding the volatile food and energy components, the “core” CPI rose by 0.3% in December, as it did in November. In December, the index for shelter (+0.5%) was the largest contributor to the monthly increase in the core CPI. Among other top contributors that rose in December include indexes for medical care (+0.6%) and motor vehicle insurance (+1.5%). Meanwhile, the top contributors  that experienced a decline in December include indexes for  household furnishings and operations (-0.4%), and personal care (-0.3%). The index for shelter makes up more than 40% of the “core” CPI. The index saw a 0.5% rise in December, following an increase of 0.4% in November. The indexes for owners’ equivalent rent (OER) increased by 0.5% and rent of primary residence (RPR) increased by 0.4% over the month. Monthly increases in OER have averaged 0.5% over the past year. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.4% in December, following a 3.1% increase in November. The “core” CPI increased by 3.9% over the past twelve months, after rising 4.0% in November. This was the slowest annual gain since May 2021. Over the past twelve months, the food index rose by 2.7% while the energy index fell by 2.0%. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.1% in December. ‹ Modest Increase in Mortgage Activity to Start 2024Tags: BLS, inflation

Housing Costs Persist in Driving Inflation Higher2024-01-11T11:17:00-06:00

Consumer Confidence Surged in December

2023-12-21T11:20:27-06:00

By Fan-Yu Kuo on December 21, 2023 • Consumer confidence jumped to a five-month high as consumers were more optimistic about inflation and the economic outlook. This optimism was primarily driven by slowing inflation, expectations of lower interest rates, and fading fears of recession. The Consumer Confidence Index, reported by the Conference Board, rose 9.7 points from 101.0 to 110.7 in December, the highest level since August 2023. The Present Situation Index rose 12.0 points from 136.5 to 148.5, while the Expectation Situation Index increased 8.2 points from 77.4 to 85.6. Historically, an Expectation Index reading below 80 often signals a recession within a year. Consumers’ assessment of current business conditions improved in December. The share of respondents rating business conditions “good” increased by 3.1 percentage points to 21.7%, while those claiming business conditions as “bad” fell by 2.4 percentage points to 16.5%. Meanwhile, consumers’ assessments of the labor market were also more positive. The share of respondents reporting that jobs were “plentiful” increased by 2.1 percentage points, while those who saw jobs as “hard to get” fell by 2.4 percentage points. Consumers were more optimistic about the short-term outlook. The share of respondents expecting business conditions to improve rose from 17.2% to 18.7%, while those expecting business conditions to deteriorate fell from 20.1% to 16.0%. Similarly, expectations of employment over the next six months were more favorable. The share of respondents expecting “more jobs” increased by 1.1 percentage points to 17.8%, and those anticipating “fewer jobs” decreased by 2.9 percentage points to 17.2%. The Conference Board also reported the share of respondents planning to buy a home within six months. The share of respondents planning to buy a home increased to 5.9% in December. Of those, respondents planning to buy a newly constructed home rose to 0.7%, and those  planning to buy an existing home climbed to 2.3%. ‹ Existing Home Sales Unexpectedly Rise Amid High Mortgage RatesTags: consumer confidence, inflation, recession

Consumer Confidence Surged in December2023-12-21T11:20:27-06:00

Inflation Slows While Housing Costs Remain Sticky

2023-12-12T10:28:42-06:00

Consumer prices rose slightly in November, with a decline in the gasoline index being offset by an increase in the shelter index. The ongoing slowdown in inflation increases the probability that the Fed is done increasing rates. 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 Fed’s ability to address rising housing costs is limited because increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are limited at best. In fact, further tightening of monetary policy will hurt housing supply because it will 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 month.  This is supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) 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% in November as the decline in gasoline index (-6.0%) and fuel oil index (-2.7%) more than offset the increases in natural gas index (+2.8%) and electricity index (+1.4%).  Excluding the volatile food and energy components, the “core” CPI rose by 0.3% in November, after rising 0.2% in October. Meanwhile, the food index increased by 0.2% in November with the food at home index rising 0.1%. In November, the index for shelter (+0.4%) was the largest contributors to the increase in the core CPI. Among the other indexes that rose in November include indexes for medical care (+0.6%) and motor vehicle insurance (+1.0%). Meanwhile, the indexes for apparel (-1.3%), household furnishings and operations (-0.4%), and communication (-0.6%) declined in November. 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 indexes for owners’ equivalent rent (OER) increased and rent of primary residence (RPR) both increased by 0.5% over the month. Monthly increases in OER have averaged 0.5% over the last ten months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.1% in November, following a 3.2% increase in October. The “core” CPI increased by 4.0% over the past twelve months, the same increase in October. This was the slowest annual gain since September 2021. Over the past twelve months, the food index rose by 2.9% while the energy index fell by 5.4%. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than overall inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.2% in November. ‹ Geography of Personal Income and Home buildingTags: cpi, inflation, shelter

Inflation Slows While Housing Costs Remain Sticky2023-12-12T10:28:42-06:00

Unraveling the Complex Tapestry of Inflation Dynamics: Post-Covid Changes

2023-11-30T09:15:54-06:00

The report from the Federal Reserve Bank of Boston discusses the recent trends in consumer price inflation, focusing on the period from 2021 to June 2023. After experiencing elevated readings in 2021 and 2022, inflation has moderated this year. The total consumer price index (CPI) decreased from 6.4 percent in December 2022 to 3.1 percent in June 2023, with core inflation (excluding food and energy prices) declining from 5.7 percent to 4.9 percent over the same period. However, the moderation in inflation is not uniform across all sectors. Persistently high shelter inflation, accounting for 43 percent of the core CPI consumption basket, has contributed to the stickiness in core inflation. Excluding shelter from the core index, inflation slowed from 4.5 percent to 2.8 percent. The trimmed-mean CPI and median CPI, which downweight extreme price movements, also declined but showed divergent trends. The Fed’s analysis delves into the distribution of inflation across consumption categories, revealing atypical features. While there have been declines in extreme tails (90th and 10th percentiles), intermediate percentiles continue to exhibit elevated inflation. The distribution shows bimodality, with some sectors experiencing low inflation and others showing relatively high inflation. This is particularly evident in the core inflation distribution excluding shelter and used vehicles. The findings suggest that sectoral adjustments play a crucial role in driving inflation dynamics, consistent with the easing of supply bottlenecks. However, there is uncertainty about the persistence of supply-side factors influencing inflation. The distributional analysis indicates that the dispersion in the distribution of price changes is still atypical, although it is moving closer to pre-pandemic patterns. The report emphasizes the role of sector-specific price adjustments in recent inflation dynamics, a phenomenon less pronounced in the years preceding the pandemic. It notes that the persistence of inflation ranks has been relatively low, cautioning against selectively focusing on categories with surprisingly low or high inflation. Further analysis of the inflation outlook suggests optimism, with a decline in some measures of underlying inflation. However, caution is advised, as the distribution remains somewhat bimodal, unlike periods of low inflation before the pandemic. The decline in inflation has been influenced by unusually large deflation in some categories, which may not be sustained. In conclusion, the publication provides a detailed analysis of recent inflation trends, highlighting the complex and uneven nature of inflation dynamics across consumption categories. It underscores the importance of considering sector-specific adjustments and warns against overly optimistic interpretations of recent improvements in inflation metrics. ‹ Declines for AD&C LendingTags: Boston Fed, cpi, housing costs, inflation, shelter

Unraveling the Complex Tapestry of Inflation Dynamics: Post-Covid Changes2023-11-30T09:15:54-06:00

Inflation Cools While Shelter Costs Remain High

2023-11-14T10:17:50-06:00

Consumer prices in October remained unchanged, with the increase in shelter index being offset by the decline in the gasoline index. This cooling inflation increases the probability that the Fed is done increasing rates. Despite the slowdown, shelter costs continue to be a key driver of inflation, accounting for over 70% of the total increase in all items excluding food and energy. The Fed’s ability to address rising housing costs is limited as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing 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 later in 2023, supported by real-time data from private data providers that indicate a cooling in rent growth. The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) was unchanged in October on a seasonally adjusted basis, following an increase of 0.4% in September. The price index for a broad set of energy sources fell by 2.5% in October as the decline in gasoline index (-5.0%) and fuel oil index (-0.8%) more than offset the increases in natural gas index (+1.2%) and electricity index (+0.3%).  Excluding the volatile food and energy components, the “core” CPI rose by 0.2% in October, after rising 0.3% in September. Meanwhile, both the food index and food at home index increased by 0.3% in October. In October, the indexes for shelter (+0.3%) was the largest contributors to the increase in the core CPI. Among the other indexes that rose in October include index for motor vehicle insurance (+1.9%), recreation (+3.2%), personal care (+6.0%) and household furnishings and operations (+1.7%). Meanwhile, the indexes for lodging away from home (-2.5%), used car and trucks (-0.8%) and communication (-0.3%) and airline fares (-0.9%) declined in October. The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.3% in October, following an increase of 0.6% in September. The indexes for owners’ equivalent rent (OER) increased by 0.4% and rent of primary residence (RPR) increased by 0.5% over the month. Monthly increases in OER have averaged 0.5% over the last ten months. These gains have been the largest contributors to headline inflation in recent months. During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 3.2% in October, following a 3.7% increase in September. The “core” CPI increased by 4.0% over the past twelve months, following a 4.1% increase in September. This was the slowest annual gain since September 2021. The food index rose by 3.3% while the energy index fell by 4.5% over the past twelve months. NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components). The Real Rent Index rose by 0.3% in October. Related ‹ Number of Bathrooms in New Single-family Homes in 2022Tags: BLS, cpi, housing costs, inflation

Inflation Cools While Shelter Costs Remain High2023-11-14T10:17:50-06:00

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