With President Trump announcing that he plans to impose 25% tariffs on Canadian and Mexican goods coming into the United States, NAHB is urging the president to exempt building materials from the proposed tariffs because of their harmful effect on housing affordability.
Personal income increased by 0.4% in December, following a 0.3% rise in November and a 0.7% gain in October, according to the latest data from the Bureau of Economic Analysis. The gains in personal income were largely driven by higher wages and salaries. However, the pace of personal income growth slowed from its peak monthly gain of 1.4% in January 2024. Real disposable income, the amount remaining after adjusted for taxes and inflation, inched up 0.1% in December, matching November’s gain and following a 0.4% increase in October. On a year-over-year basis, real (inflation-adjusted) disposable income rose 2.4%, down from a 6.5% year-over-year peak recorded in June 2023. Meanwhile, personal consumption expenditures rose 0.7% in December, building on a 0.6% increase in November and 0.5% in October. Real spending, adjusted to remove inflation, increased 0.4% in December, with expenditures on goods climbing 0.7% and spending on services up 0.3%. As spending outpaced personal income growth, the personal savings rate dipped to 3.8% in December, down from 4.1% in November and 4.3% in October. With inflation eroding compensation gains, people are dipping into savings to support spending. This trend will ultimately lead to a slowing of consumer spending. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.
The Federal Reserve paused on rate cuts at the conclusion of its January meeting, holding the federal funds rate in the 4.25% to 4.5% range. The Fed will continue to reduce its balance sheet, including holdings of mortgage-backed securities.
Mortgage rates edged higher in January, with the average 30-year fixed-rate mortgage reaching 6.96%. Rates had been climbing steadily since mid-December—even surpassing 7%—before easing in recent weeks as the bond market stabilized following news that President Donald Trump postponed tariffs plans to February 1. According to Freddie Mac, the average rate for a 30-year fixed-rate mortgage rose 24 basis points (bps) from December, extending a two-year trend of fluctuations between 6% and 7%. Meanwhile, the 15-year fixed-rate mortgage increased 23 bps to land at 6.13%. The 10-year Treasury yield, a key benchmark for mortgage rates, averaged 4.63% in November—33 basis points higher than December’s average. A strong economy, coupled with ongoing uncertainty over inflation due to tax cuts and tariffs, continues to put upward pressure on yields. This uncertainty is also reflected in the increased range for the projected 2025 core PCE inflation in the December FOMC economic projections, now estimated between 2.1% and 3.2%, compared to a narrower 2.1% to 2.5% range in September. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.
The mobile app for the 2025 International Builders’ Show (IBS) is now available to download from the Apple App Store or Google Play.
Real GDP growth slowed in the fourth quarter of 2024, but the economy finished the year at a solid rate. While consumer spending continued to drive growth, gross private domestic investment detracted over a full percentage point mainly due to a decline in private inventories. According to the “advance” estimate released by the Bureau of Economic Analysis (BEA), real gross domestic product (GDP) expanded at an annual rate of 2.3% in the fourth quarter of 2024, following a 3.1% gain in the third quarter of 2024. This quarter’s growth was higher than NAHB’s forecast of a 1.8% increase. Furthermore, the data from the GDP report suggests that inflationary pressure persisted at the end of 2024. The GDP price index rose 2.2% for the fourth quarter, up from a 1.9% increase in the third quarter of 2024. The Personal Consumption Expenditures Price (PCE) Index, which measures inflation (or deflation) across various consumer expenses and reflects changes in consumer behavior, rose 2.3% in the fourth quarter. This is up from a 1.5% increase in the third quarter of 2024. For the full year, real GDP grew at a healthy rate of 2.8% in 2024. It was slightly slower than the 2023 level of a 2.9% increase and matched NAHB’s forecast. This quarter’s increase in real GDP primarily reflected increases in consumer spending, and government spending. Consumer spending, the backbone of the U.S. economy, rose at an annual rate of 4.2% in the fourth quarter. This marks the highest annual growth rate since the first quarter of 2023. The increase in consumer spending reflected increases in both goods and services. While goods spending increased at a 6.6% annual rate, expenditures for services increased at a 3.1% annual rate. In the fourth quarter, government spending increased at a 2.5% rate. Nonresidential fixed investment decreased 2.2% in the fourth quarter. The decrease in nonresidential fixed investment reflected decreases in equipment (-7.8%) and structures (-1.1%). Meanwhile, residential fixed investment increased 5.3% in the fourth quarter after two consecutive quarters of declines. Within residential fixed investment, single-family structures rose 3.1% at an annual rate, improvements increased 2.7%, while multifamily structures declined 7.2%. Compared to the third quarter, the deceleration in real GDP in the fourth quarter primarily reflected downturns in gross private domestic investment and exports. Inventories fell and dragged down the contribution to real GDP by 0.93 percentage points. Imports decreased. For the common BEA terms and definitions, please access bea.gov/Help/Glossary. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.
Housing’s share of the economy remained unchanged at 16.2% in the fourth quarter of 2024, according to the advance estimate of GDP produced by the Bureau of Economic Analysis. For the year, housing’s share of the economy was 16.2%, up from 16.0% in 2023 and down from 16.5% in 2022. The more cyclical home building and remodeling component – residential fixed investment (RFI) – was 4.0% of GDP, level with the previous quarter. The second component – housing services – was 12.2% of GDP, also level with the previous quarter. The graph below stacks the nominal shares for housing services and RFI, resulting in housing’s total share of the economy. Housing service growth is much less volatile when compared to RFI due to the cyclical nature of RFI. 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. In the fourth quarter, RFI added 21 basis points from the headline GDP growth rate in the fourth quarter of 2024, a welcomed result as RFI previously had two consecutive quarters of negative contributions to GDP. The Federal Reserve, while keeping unchanged this month, lowered the federal funds rate by 100 basis points in September and December of 2024. This likely improved financing conditions for many builders, leading to RFI’s growth in the fourth quarter. A notable observation from the fourth quarter release was nonresidential fixed investment (similar to RFI, but for nonresidential structures) negatively contributed 31 basis points to GDP growth, the first negative effect on the economy for nonresidential fixed investment in over three years. Housing services added 17 basis points (bps) to GDP growth. Among household expenditures for services, housing services contributions were the fourth-highest contributor to headline GDP growth behind health care (46 bps), other services (31 bps) and financial services and insurance (18 bps). Overall GDP increased at a 2.3% annual rate, down from a 3.1% increase in the third quarter of 2024, and down from a 3.0% increase in the second quarter of 2024. Headline GDP growth in 2024 was 2.8%, down slightly from 2.9% in 2023 but up from 2.5% in 2022. 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. RFI consists of two specific types of investment, the first is residential structures. This investment includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes, brokers’ fees and some types of equipment that are built into the structure. RFI’s second component, residential equipment, includes investment such as furniture or household appliances that are purchased by landlords for rental to tenants. For the fourth quarter, RFI was 4.0% of the economy, recording a $1.200 trillion seasonally adjusted annual pace. RFI grew 5.3% at an annual rate in the fourth quarter after falling 4.4% in the third. Among the two types of RFI, real investment in residential structures rose 5.3% while for residential equipment it rose 4.9%. Investment in residential structures stood at a seasonally adjusted annual pace of $1.178 trillion, making its share of residential investment far greater than that of residential equipment, which was at seasonally adjusted annual pace of $21.5 billion. The second impact of housing on GDP is the measure of housing services. Similar to the RFI, housing services consumption can be broken out into two components. The first component, housing, includes gross rents paid by renters, owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units), rental value of farm dwellings, and group housing. 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. The second component, household utilities, is composed of consumption expenditures on water supply, sanitation, electricity, and gas. For the fourth quarter, housing services represented 12.2% of the economy or $3.625 trillion on a seasonally adjusted annual basis. Housing services grew 1.4% at an annual rate in the fourth quarter. Real person consumption expenditures for housing also grew 1.4%, while household utilities expenditures grew 1.6%. At the seasonally adjusted annual pace, housing expenditures was $3.166 trillion and household utility expenditures stood at $458.9 billion in seasonally adjusted annual rates. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.
Zainab Sanusi is a "numbers" girl." From a young age she was fascinated by unique homes and, with a strong passion for both math and construction, wanted to one day help bring new ones to life. Today, she does just that as a project estimator for Bedrock Homes in Atlanta.
In a widely anticipated announcement, the Federal Reserve paused on rate cuts at the conclusion of its January meeting, holding the federal funds rate in the 4.25% to 4.5% range. The Fed will continue to reduce its balance sheet, including holdings of mortgage-backed securities. The Fed noted the economy remains solid, while specifying a data dependent pause. Chair Powell did qualify current policy as “meaningfully restrictive,” but the central bank appears to be in no hurry to enact additional rate cuts. While the Fed did not cite the election and accompanying policy changes today, the central bank did note that its future assessments of monetary policy “will take into account a wide range of information, including readings on labor market conditions, inflation pressures, and inflation expectations, and financial and international developments.” Given the ongoing, outsized impact that shelter inflation is having on consumers and inflation, an explicit mention to housing market conditions would have been useful in this otherwise exhaustive list. Chair Powell did state in his press conference that housing market activity appears to have “stabilized.” A reasonable assumption is that this is a reference to an improving trend for rent growth (for renters and owners-equivalent rent), but the meaning of this statement is not entirely clear given recent housing market data and challenges. While improving, shelter inflation is running at an elevated 4.6% annual growth rate, well above the CPI. These housing costs are driven by continuing cost challenges for builders such as financing costs and regulatory burdens, and other factors on the demand-side of the market like rising insurance costs. And more fundamentally, the structural housing deficit persists. From the big picture perspective, the Fed faces competing risks for future policy given changes in Washington, D.C. Tariffs and a tighter labor market from immigration issues represent upside inflation risks, but equity markets have cheered prospects for an improved regulatory policy environment, productivity gains and economic growth due to the November election. These crosswinds may signal a lengthy pause for monetary policy as the Fed continually seeks more short-term data. While the Fed targets short-term interest rates, long-term interest rates have risen significantly since September, as a second Trump win came into focus. A future risk for long-term interest rates and inflation expectations will be fiscal policy and government debt levels. Extension of the 2017 tax cuts will be good for the economy, but ideally these tax reductions should be financed with government spending cuts. Otherwise, a larger federal government debt will place upward pressure on long-term interest rates, including those for mortgages. The January Fed statement acknowledged the central bank’s dual mandate by noting that it would continue to assess the “balance of risks.” There was no language in today’s statement pointing to a future cut, although markets still expect one or two reductions in 2025 if inflation remains on a moderating trend. Importantly, the Fed reemphasized that it is “strongly committed to support maximum employment and returning inflation to its 2 percent objective.” That seemed like a shot across the bow for those speculating that the Fed might be satisfied with achieving an inflation rate closer to but not quite 2%. While there is merit to debating the 2% policy, the emphasis today on the 2% target is a reminder of how important the housing market and housing affordability is for monetary policy and future macroeconomic trends. Discover more from Eye On Housing Subscribe to get the latest posts sent to your email.
The White House Office of Management and Budget has rescinded a memo authorizing the temporary freeze of many federal grants and loans.