Single-family home construction rises in spring 2024

Robby Brumberg and Michael Dempster of Consumer Affairs report on new housing construction, noting that in February 2024, the U.S. Census Bureau estimated that 126,417 building permits were issued for privately owned housing units. This number is 2% higher than last month and 2.4% more than last year. Of these, 85,917 were single-family home authorizations, while buildings with five or more units totaled 35,750.

Danushka Nanayakkara-Skillington of the National Association of Home Builders (NAHB) reports that in the first two months of 2024, single-family permits nationwide increased by 38.4% YoY to 155,236. All four regions saw an increase in single-family permits, with the West seeing the highest (54.2%) and the Northeast the lowest (22.2%). Multifamily permits were split, with the Northeast and Midwest postings increasing while the South and West declined.

Source: NAHB (April 2024)

“Between February 2024 YTD and February 2023 YTD, 48 states posted an increase in single-family permits. Rhode Island, Alaska, and the District of Columbia reported declines in single-family permits. The range of increases spanned 106.4% in Montana to 3.3% in North Dakota. The ten states issuing the highest number of single-family permits combined accounted for 66.6% of the total single-family permits issued. Texas, the state with the highest number of single-family permits, issued 26,454 permits over the first two months of 2024, which is an increase of 49.0% compared to the same period last year.”

Jesse Wade of NAHB reports on construction costing, noting that inputs to residential construction have increased for the fifth consecutive month. The non-seasonally adjusted Producer Price Index (PPI) increased by 0.21% in March, following a 0.54% increase in February and a 1.25% increase in January. The index growth rate remains higher than in 2023, with consistent monthly increases for the first three months of 2024.

Meghan Malas of ResiClub reports on construction costs, highlighting that data from NAHB shows that the total construction costs for the average single-family home was $392,241. Here is a breakdown of the building costs by item:

Source: ResiClub (April 2024)

CPI update

Speaking of costs, Lucia Mutikani of Reuters reports on the Consumer Price Index (CPI) data released last week. The index increased by 0.4% in March, the same growth margin as in February. Shelter costs, including rents, also increased by 0.4%, matching the gain in February. Gasoline and shelter expenses accounted for over half of the CPI’s increase. 

Source: Reuters (April 2024)

Fannie Mae comments on the CPI data, noting that the readings were above market expectations, indicating that some price pressures remain. Small businesses also reported price increases in March, leading to upward revisions of inflation expectations for the year. As a result, a June rate cut is unlikely due to the strong labor market and hot inflation readings, and the rise in the 10-year Treasury will likely put upward pressure on mortgage rates.

Indeed, Orphe Divounguy of Zillow comments on interest rates and the CPI data, noting that “mortgage rates increased this week on higher than expected inflation data…The US economy has been resilient despite high interest rates. These strong inflation numbers will also likely delay any potential Federal Reserve rate cuts.”

Danielle Hale of Realtor.com joins the conversation, highlighting that shelter inflation drives core inflation, accounting for 60% of annual core inflation in March. Despite declining rents for seven months, shelter inflation is still climbing due to adjusted rent trends. Renting a starter home is cheaper than buying in all 50 major markets, but homebuyers can look for sellers advertising assumable mortgages to hack their way into homeownership. Sellers with a mortgage that allows assumption, such as a VA or FHA loan, are drawing buyer attention to this advantage.

In commenting on the inflation data, JPMorgan released a statement highlighting their assessment of the current interest rate situation: “We still expect the Fed to begin cutting interest rates at some point later in the year, as Powell expressed at the Federal Market Committee (FOMC) meeting in March. While the CPI report will likely play a role in the Fed’s interest rate decision-making process at its next FOMC meeting, the Fed’s preferred measure of inflation, the Personal Consumption Expenditures (PCE) deflator, will be released April 26 and will likely play a larger role. For more information on how this economic data may impact your investment strategy, consult a financial advisor.”

Renters

Shelter inflation is indeed rising, according to Lily Katz from Redfin. The median U.S. asking rent has increased by 1% annually. However, the Midwest region has seen a much larger increase of 5% in their rents, possibly due to a smaller construction boom than other parts of the country. The median asking rent in March was $1,987, a 0.8% increase from the previous year, making it the third consecutive increase after three months of decreases. The asking rents have remained relatively stable from February, with only a 0.3% increase.

Source: Redfin (April 2024)

“The good news for renters is that prices aren’t growing nearly as fast as they were during the pandemic, and are more predictable. Rents soared by as much as 17.7% year over year in 2022 due to the pandemic moving frenzy and then quickly cooled in 2023, falling by as much as 2.1% as an influx of apartment supply drove up vacancies. Year-over-year rent growth has stayed below 3% since the start of 2023. The number of apartments under construction remains near a record high, meaning there’s still a lot of supply in the pipeline, which will likely prevent rents from increasing dramatically in the near future.”

Will Parker of the Wall Street Journal reports on shelter inflation, noting that the growth in this inflation component is slowing and that “economists expect that decline will continue as more supply comes online and tenants reach their limits.” 

Dana Anderson of Redfin also reports on other data showing that increasing home prices and mortgage rates make it challenging to believe in the American dream of homeownership. The lack of affordability is why renters don’t think they can own a home. Almost 38% of renters believe they will never be able to own a home, an increase from 27% less than a year ago.

Source: Redfin (April 2024)

Redfin Chief Economist Daryl Fairweather comments on the data:

“Housing costs are high across the board, but renting is a more affordable and realistic option for many Americans right now–especially those who have never owned a home and aren’t able to tap into equity from a previous sale…While owning a home is usually a sound longterm investment, the barriers to entry and upfront costs of buying are higher than renting. Buying typically requires a sizable down payment and approval for a mortgage–things that are difficult for many people today, when the typical down payment is near $60,000 and mortgage payments are sky-high. The sheer expense of purchasing a home is causing the American Dream of homeownership to lose some of its shine.” 

Carol Ryan of the Wall Street Journal reports that larger institutional investors are increasingly betting on wealthy renters. Blackstone is reportedly set to acquire Apartment Income REIT for around $10 billion, including debt, at a 25% premium to the property company’s most recent closing price. The private equity firm targets tenants with six-figure incomes and perfect credit scores who prefer to rent luxury units. The deal is expected to close in Q3 2024.

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