Inflation Eases Further in June

2024-07-11T10:23:55-05:00

Both overall and core inflation continued to slow in June, as a decline in gasoline prices offset the increase in shelter costs. This is another dovish signal for future monetary policy, following a significant downward revision to the job report. Despite a slowdown in the year-over-year increase, shelter costs continue to put upward pressure on inflation, accounting for over 60% of the total increase in core inflation. While this report indicates signs of softening prices, the Federal Reserve will require further data to confirm a consistent disinflation trend toward their 2% target before considering rate cuts. 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. However, 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 reported that the Consumer Price Index (CPI) fell by 0.1% in June on a seasonally adjusted basis, after being unchanged in May. This was the first monthly decline since May 2020. Excluding the volatile food and energy components, the “core” CPI increased by 0.1% in June, after a 0.2% increase in May. The price index for a broad set of energy sources fell by 2.0% in June, led by a 3.8% decrease in the gasoline index. Other energy indexes such as electricity and fuel oil declined 0.7% and 2.4%, respectively, while the natural gas index increased by 2.4%. Meanwhile, the food index rose 0.2%, after a 0.1% increase in May. The index for food away from home increased by 0.4% and the index for food at home rose 0.1%. In June, the index for shelter (+0.2%) continued to be the largest contributor to the monthly increase in the core CPI. Among other top contributors that rose in June include indexes for motor vehicle insurance (+0.9%), household furnishings and operations (+0.5%), and medical care (+0.2%). Meanwhile, the top contributors that experienced a decline in June include indexes for airline fares (-5.0%), used cars and trucks (-1.5%) and communication (-0.2%). The index for shelter makes up more than 40% of the “core” CPI. The shelter index rose by 0.2% and remained the largest factor in the monthly increase in the index for core inflation. Both the indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.3% over the month, the smallest monthly increases since August 2021. 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 3.0% in June, following a 3.3% increase in May. The “core” CPI increased by 3.3% over the past twelve months, following a 3.4% increase in May. This was the slowest annual gain since April 2021. Over the past twelve months, the food index rose by 2.2%, and the energy index increased by 1.0%. This marks the fourth consecutive month of year-over-year increases for the energy index since February 2023. 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). In June, the Real Rent Index rose by 0.2%, after a 0.2% increase in May. Over the first six months of 2024, the monthly growth rate of the Real Rent Index averaged 0.1%, slower than the average of 0.2% in 2023. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Inflation Eases Further in June2024-07-11T10:23:55-05:00

2024 First Quarter State-Level GDP Data

2024-06-28T14:20:40-05:00

Real gross domestic product (GDP) increased in 39 states and the District of Columbia in the first quarter of 2024 compared to the last quarter of 2023 according to the U.S. Bureau of Economic Analysis (BEA). Ten states reported an economic contraction during this time, while Maryland reported no change. The percent change in real GDP ranged from a 5.0 percent increase at an annual rate in Idaho to a 4.2 percent decline in South Dakota. Nationwide, growth in real GDP (measured on a seasonally adjusted annual rate basis) increased 1.4 percent in first quarter of 2024, which is much lower than the fourth quarter 2023 level of 3.4 percent. Retail trade; construction; finance and insurance; and health care and social assistance were the leading contributors to the increase in real GDP across the country. Regionally, real GDP growth increased in six out of the eight regions between the fourth quarter 2023 and first quarter of 2024. The percent change in real GDP ranged from a 2.7 percent increase in the Southwest region (Arizona, New Mexico, Oklahoma, and Texas) to a 1.5 percent decline in the Plains region (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota). At the state level, Idaho (5.0 percent) posted the highest GDP growth rate followed by Nevada (4.4 percent) and Oklahoma (4.2 percent). On the other hand, Louisiana, Ohio, Minnesota, Illinois, Oregon, Nebraska, Iowa, Kansas, and the Dakotas all posted economic contractions in the first quarter of 2024. The construction industry was the leading contributor to growth in 10 states including Idaho and Nevada, the states with the first-, second-largest increases in real GDP, respectively. Agriculture, forestry, fishing, and hunting were the leading contributors to growth in Oklahoma, the state with the third largest increase in real GDP. However, this industry was the largest drag on state economies in the Dakotas, Kansas, Iowa, Nebraska, and Illinois. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

2024 First Quarter State-Level GDP Data2024-06-28T14:20:40-05:00

Consumer Confidence Edged Lower Amid Future Economic Concerns

2024-06-26T16:18:10-05:00

Consumer confidence weakened in June but remained within the range of the past two years, with optimism about current labor market conditions offsetting concerns about future economic outlook. However, higher interest rates and lingering inflation continue to discourage consumption.  The Consumer Confidence Index, reported by the Conference Board, fell from 101.3 to 100.4 in June. The Present Situation Index rose 0.7 points from 140.8 to 141.5, while the Expectation Situation Index fell 1.9 points from 74.9 to 73. Historically, an Expectation Index reading below 80 often signals a recession within a year. Consumers’ assessment of current business conditions fell slightly in June. The share of respondents rating business conditions “good” decreased by 1.2 percentage points to 19.6%, while those claiming business conditions as “bad” fell by 0.7 percentage points to 17.7%. Meanwhile, consumers’ assessments of the labor market were more positive. The share of respondents reporting that jobs were “plentiful” increased by 1.1 percentage points, while those who saw jobs as “hard to get” fell by 0.2 percentage points. Consumers were less pessimistic about the short-term outlook. The share of respondents expecting business conditions to improve fell from 13.7% to 12.5%, while those expecting business conditions to deteriorate decreased from 16.9% to 16.7%. Similarly, expectations of employment over the next six months were less favorable. The share of respondents expecting “more jobs” decreased by 0.5 percentage points to 12.6%, and those anticipating “fewer jobs” declined by 1.5 percentage points to 17.3%. 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 remained unchanged at 5.2% in June. Of those, respondents planning to buy a newly constructed home fell slightly to 0.4%, and those planning to buy an existing home decreased to 2%. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Consumer Confidence Edged Lower Amid Future Economic Concerns2024-06-26T16:18:10-05:00

Fed Holds Rates Constant; Sees One Cut for 2024

2024-06-12T15:24:11-05:00

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. In its statement, the Federal Open Market Committee (FOMC) noted: Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2 percent inflation objective. 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. An important reason for the lack of recent inflation reduction remains elevated measures of shelter inflation, which can only be tamed in the long-run by increases in housing supply. Ironically, higher interest rates are preventing more construction by increasing the cost and limiting the availability of builder and developer loans necessary to construct new housing. Chair Powell noted the challenges for housing in the current environment. He stated that the “housing situation is complicated.” He indicated that the best thing the Fed could do for the housing market would be “to bring inflation down, so that we can bring rates down.” However, Chair Powell noted that “there will still be a national housing shortage as there was before the pandemic.” We agree. The housing market requires non-monetary policy help on the supply-side of the industry, including labor force development and zoning reform, to address the housing shortage. The Fed also published new economic projections with the conclusion of its June meeting. These projections include a consensus expectation of just one rate cut in 2024, consistent with NAHB’s current economic forecast. While this is a reduction in rate cuts from the March outlook, the policy bias is clearly toward lower rates in the near-term, not rate hikes. The projections reveal that the Fed does not expect to fully achieve its 2% inflation target on the core PCE inflation measure until 2026. The rest of the Fed’s macro forecast was relatively unchanged. The Fed is expecting a 2.1% GDP growth rate (year-over-year for the fourth quarter) for 2024 and 2% for 2025. The Fed’s outlook for labor markets remains robust despite tighter financial conditions. The forecast is for a rise in unemployment to just 4.2% for the final quarter of 2025. A notable change was made to the Fed’s long-run projection for the federal funds rate. The March forecast saw a long-run federal funds rate of 2.5% to 3.1%. This was increased in the June outlook to a 2.5% to 3.5% range. While this is a theoretical measure, it does reflect a change in the Fed’s thinking regarding economic growth. Because this rate range increased, and the Fed’s long-run GDP growth forecast did not increase, it indicates that the Fed expects higher rates will be needed in the years ahead to maintain relatively neutral monetary policy in the theoretical long-run. In the short-run, the NAHB Economics team’s focus continues to be on the interplay between Fed monetary policy and the shelter/housing inflation component of overall inflation. With more than half of the overall gains for consumer inflation due to shelter over the last year, increasing attainable housing supply is a key anti-inflationary strategy, one that is complicated by higher short-term rates, which increase builder financing costs and hinder home construction activity. For these reasons, policy action in other areas, such as zoning reform and streamlining permitting, can be important ways for other elements of the government to fight inflation. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Fed Holds Rates Constant; Sees One Cut for 20242024-06-12T15:24:11-05:00

Inflation Moderates Despite Persistent Housing Cost Growth

2024-06-12T10:24:21-05:00

Both overall and core inflation continued to ease in May as decline in gasoline price offset the increase the shelter cost. This is a dovish signal for future monetary policy. Despite a slowdown in the year-over-year increase, shelter costs continue to put upward pressure on inflation, accounting for over 60% of the total increase in core inflation. While this report indicates signs of softening prices, the Federal Reserve will require further data to confirm a consistent disinflation trend toward their 2% target before considering rate cuts. 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. However, 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  reported that the Consumer Price Index (CPI) was unchanged in May on a seasonally adjusted basis, after a 0.3% increase in April. Excluding the volatile food and energy components, the “core” CPI increased by 0.2% in May, after a 0.3% increase in April. The price index for a broad set of energy sources fell by 2.0% in May, led by a 3.6% decrease in the gasoline index. Other energy indexes such as natural gas and fuel oil declined 0.8% and 0.4%, respectively, while the electricity index was unchanged. Meanwhile, the food index rose 0.1% , after being unchanged in April. The index for food away from home increased 0.4%, while the index for food at home remained unchanged in May. In May, the index for shelter (+0.4%) continued to be the largest contributor to the monthly rise in the core CPI. Among other top contributors that rose in May include indexes for medical care (+0.5%), used cars and trucks (+0.6%) and education (+0.4%). Meanwhile, the top contributors that experienced a decline in May include indexes for airline fares (-3.6%), new vehicles (-0.5%), communication (-0.3%) recreation (-0.2%) and apparel (-0.4%). The index for shelter makes up more than 40% of the “core” CPI. The shelter index rose by 0.4% for the fourth straight month and the remained largest factor in the monthly increase in the index for core inflation. Both the indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.4% over the month, same increase in April. 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 3.3% in May, following a 3.4% increase in April. The “core” CPI increased by 3.4% over the past twelve months, following a 3.6% increase in April. This was the slowest annual gain since April 2021. Over the past twelve months, the food index rose by 2.1%, and the energy index increased by 3.7%. This marks the third consecutive month of year-over-year increases for the energy index since February 2023. 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). In May, the Real Rent Index rose by 0.2%, after a 0.1% increase in April. Over the first five months of 2024, the monthly growth rate of the Real Rent Index averaged 0.5%, slower than the average of 0.6% in 2023. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Inflation Moderates Despite Persistent Housing Cost Growth2024-06-12T10:24:21-05:00

Mortgage Rates Higher in April

2024-05-24T08:21:54-05:00

Mortgage rates have increased on a monthly basis, according to data from Freddie Mac. As of end of April 2024, the 30-year FRM – Commitment rate, increased by 17 basis points (bps) to 6.99 percent from 6.82 percent in March. This was a 35 bps increase from the beginning of the year (6.64 percent), and 65 bps from last year (6.34 percent). However, rates remain lower than the cycle peak of 7.62 percent last October. The latest weekly data from Freddie Mac shows that a trend of elevated rates is likely to continue, as the average weekly 30-year mortgage rate for this month is reported to be above 7 percent. The 30-year mortgage rate is influenced by the 10-year Treasury rate, which rose by 33 basis points to 4.54 percent between the end of March and the end of April. This increase reflects investor reactions to persistent inflation and the Federal Reserve maintaining the federal funds rate at 5.5 percent while retracting some indications of late 2024 monetary policy easing. Per the NAHB forecast, we expect mortgage rates to stay elevated at around 6.66% at the end of 2024 and eventually to decline to under 6% by the end of 2025. The NAHB outlook is for the federal funds rate to be cut at the December meeting and six rate cuts in 2025. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Mortgage Rates Higher in April2024-05-24T08:21:54-05:00

Housing Costs Continue to Drive Price Gains

2024-05-15T12:18:02-05:00

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 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 also constrained. In fact, continued 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 April on a seasonally adjusted (SA) basis, after an increase of 0.4% in March. It marks the largest monthly increase since June 2009. Excluding the volatile food and energy components, “core” CPI increased by 0.3% in April, after three consecutive months of 0.4% increases. The price index for a broad set of energy sources rose by 1.1% in April, as gasoline prices increased by 2.8%. While energy commodities increased by 2.7%, energy services declined by 0.7%. The food index was unchanged in April, after a 0.1% increase in March. The index for food away from home rose 0.3%, and the index for food at home decreased by 0.2% in April. The shelter index rose by 0.4% for the third straight month and remained the largest factor in the monthly increase in the index for all items less food and energy. Both the indexes for owners’ equivalent rent (OER) 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. The indexes for shelter and gasoline together contributed over 70% of the monthly increase in the index for all items. During the past twelve months, on a non-seasonally adjusted (NSA) basis, the CPI rose by 3.4% in April, following a 3.5% increase in March. The “core” CPI increased by 3.6% over the past twelve months, slower than a 3.8% increase in March. It marks the lowest YOY gain since April 2021. Over the past twelve months, the food index rose by 2.2% for the third straight month, while the energy index increased by 2.6%. 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). In April, the Real Rent Index rose by 0.1%, after being unchanged in March. Over the first four months of 2024, the monthly growth rate of the Real Rent Index was 0%, on average, slower than the average of 0.2% in 2023. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Housing Costs Continue to Drive Price Gains2024-05-15T12:18:02-05:00

Credit for Builders Tightens Slightly, Remains Costly

2024-05-10T15:15:43-05:00

During the first quarter of 2024, credit for residential Land Acquisition, Development & Construction (AD&C) tightened slightly and remained costly, according to NAHB’s survey on AD&C Financing. The net easing index derived from the survey posted a reading of -22.0 (the negative number indicating that credit availability tightened in the first quarter compared to the fourth quarter of 2023). A comparable net easing index based on the Federal Reserve’s survey of senior loan officers showed a similar result, with a reading of -24.6. Accordingly, borrowers and lenders were in close agreement about the tightening taking place in the first quarter. The net tightening reported by the NAHB and Fed indices in 2024 Q1 is not as poor as it was from mid-2022 through the third quarter of 2023 when both indices were consistently below -35.0. The NAHB index was as low as -49.3 in 2023 Q3, and the Fed index hit a trough of -73.8 in the first quarter of that year. However, both indices have been negative every quarter since 2022 Q1. After nine consecutive quarters of tightening, credit has now unquestionably become difficult for most builders and developers to obtain, irrespective of how much additional tightening lenders applied in 2024 Q1. According to the NAHB survey, the most common ways in which lenders tightened in the first quarter were by reducing the amount they are willing to lend, reported by 62% of builders and developers; and requiring personal guarantees/other collateral unrelated to the project and increasing interest rates, reported by 48% each. As these results suggest, when builders and developers were able to obtain credit in the first quarter of 2024, that credit remained costly. The average effective interest rate (taking both the contract rate and initial points into account) on land acquisition loans increased from 10.58% to 11.09% in 2024 Q1—as high as the rate on acquisition loans has been since NAHB began tracking it in 2018. Meanwhile, the effective rate on the other three categories of AD&C loans in the first quarter stood near 13%. The average effective rate increased on loans for land development (from 11.25% in 2023 Q4 to 13.10%) and speculative single-family construction (from 12.96% to 13.35%), while declining from 15.65% to 12.95% on loans for pre-sold single-family construction. Quarter-over-quarter changes in the effective rates were driven largely by initial points on the loans. On loans for pre-sold single-family construction, average initial points declined from an atypically high 1.08% in 2023 Q4 to 0.57%. On the other three categories of AD&C loans, the average initial points increased: from 0.71% to 0.88% on loans for land acquisition, from 0.60% to 0.85% on loans for land development, and from 0.73% to 0.76% on loans for speculative single-family construction. Quarter-over-quarter changes in the underlying contract interest rate on the loans were relatively modest. The average contract rate declined from 8.12% in 2023 Q4 to 8.07% on loans for land development, and from 8.41% to 8.24% on loans for speculative single-family construction. The average contract rate increased from 8.31% to 8.40% on loans for land acquisition, and from 8.38% to 8.40% on loans for pre-sold single-family construction. Recent increases in mortgage rates and their adverse effect on housing affordability have received considerable attention lately, and justifiably so. That is not the only way interest rates impact affordability, however.  Builders and developers will struggle to increase the supply of affordable housing unless they can access all the necessary inputs at a reasonable cost, including AD&C credit. More detail on credit conditions for builders and developers is available on NAHB’s AD&C Financing Survey web page. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Credit for Builders Tightens Slightly, Remains Costly2024-05-10T15:15:43-05:00

Positive Momentum in Demand, Lending Conditions: Q1 2024 SLOOS

2024-05-07T14:16:52-05:00

According to the Federal Reserve Board’s April 2024 Senior Loan Officer Opinion Survey (SLOOS), lending standards loosened further for all commercial real estate (CRE) loan categories and residential real estate (RRE) categories in the first quarter of 2024.  While the Federal Reserve left the federal funds rate unchanged during their last meeting, demand for RRE and CRE loans saw marked improvement across all categories in the quarter.  Residential Real Estate (RRE) A higher net percentage of banks reported looser residential mortgage lending standards in Q1 2024 compared to Q4 2023 for all categories of RRE loans.  For the second consecutive quarter, the largest improvement occurred for Qualified Mortgage (QM) jumbo which fell 11.8 percentage points (pp) from 15.4% in Q4 2023 to 3.6% in Q1 2024.  GSE-eligible was the only RRE category which saw more banks reporting looser rather than tighter conditions, as evident by a negative reading in Q1 2024 (-1.8%).  Government loans (i.e., issued by FHFA, Department of Veteran Affairs, USDA, etc.) saw a neutral reading where the number of banks reporting tighter and those reporting looser lending conditions was the same (0%). All RRE categories but one (subprime) experienced a quarter-over-quarter increase of at least 25 pp in demand from Q4 2023 to Q1 2024, led by GSE-eligible loans improving 42.1 pp to -8.8%.  On other hand, all RRE categories saw year-over-year double-digit percentage point increases from Q1 2023 to Q1 2024, with two categories increasing by at least 40 percentage points: GSE-eligible (+43.9 pp) and QM jumbo (+40.2 pp). Commercial Real Estate (CRE) Both multifamily as well as all CRE construction and development loans, on net, experienced a loosening of lending standards from Q4 2023 to Q1 2024.  Construction & development experienced the share of banks reporting tightening conditions drop 15.1 pp to 24.6% while multifamily decreased by 6.8 pp to 33.9%.  On a year-over-year basis, lending conditions for both construction & development (-49.2 pp) and multifamily (-30.6 pp) loosened substantially. About a third of banks reported weaker demand for loans secured by multifamily properties compared to 16.7% for construction & development loans; this marked double-digit percentage point quarterly improvements for both loan types, led by construction & development (+29.9 pp).  While demand continues to be negative, both construction & development (+50.5 pp) and multifamily (+38.7 pp) experienced large increases in activity year-over-year. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Positive Momentum in Demand, Lending Conditions: Q1 2024 SLOOS2024-05-07T14:16:52-05:00

Housing Share of GDP Surpasses 16% for First Time Since 2022

2024-04-25T11:15:37-05:00

Housing’s share of the economy rose to 16.1% in the first quarter of 2024. The share remained below 16% for all of 2023 at 15.9% in each of the four quarters. This increase to above 16% marks the first-time housing’s share of GDP is above 16% since 2022. In the first quarter, the more cyclical home building and remodeling component – residential fixed investment (RFI) – increased to 4.0% of GDP, up from 3.9% in the fourth quarter. RFI added 52 basis points to the headline GDP growth rate in the first quarter of 2024, marking three consecutive quarters of positive contributions. Housing services added 17 basis points to GDP growth in the first quarter. Among household expenditures for services, housing services contributions were behind health care (0.59), financial services and insurance (0.37) and other services (0.18). Overall GDP increased at a 1.6% annual rate, following a 3.4% increase in the fourth quarter of 2023, and a 4.9% increase in the third quarter of 2023. Housing-related activities contribute to GDP in two basic ways: The first is through residential fixed investment (RFI). RFI is effectively the measure of home building, multifamily development, and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees. For the first quarter, RFI was 4.0% of the economy, recording a $1.1 trillion seasonally adjusted annual pace. RFI grew 13.9% at an annual rate in the first quarter, the highest rate seen since the fourth quarter of 2020 (30.1%). The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines in GDP. For the first quarter, housing services represented 12.1% of the economy or $3.4 trillion on a seasonally adjusted annual basis. Housing services grew 1.4% at an annual rate in the first quarter. Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle. However, the housing share of GDP lagged during the post-Great Recession period due to underbuilding, particularly for the single-family sector. Discover more from Eye On Housing Subscribe to get the latest posts to your email.

Housing Share of GDP Surpasses 16% for First Time Since 20222024-04-25T11:15:37-05:00

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