Fed Acts on Inflation as Housing Affordability Weakens
NAHB Chief Economist Robert Dietz recently provided this housing industry overview in the bi-weekly e-newsletter Eye on the Economy.
The combination of higher home prices, rising construction costs and moderately higher interest rates will exacerbate housing affordability conditions and increasingly push prospective buyers out of the market in the coming months.
Although economic growth is going to post the best year since 1984, that expansion has come about because of significant monetary and fiscal policy stimulus.
As supply-chain issues persist while the economy attempts to build on the post-2020 rebound, the expansion will become increasingly uneven. The first example of this variability was seen in the third quarter GDP data. Real GDP expanded by only 2% — noticeably less than what was forecasted earlier in the year and largely because of the rise of the delta variant.
The labor market is showing signs of overheating as well. There are more open jobs than there are unemployed workers available because of declines in the labor force participation rate. Jobs gains were solid in October, as payroll employment increased by 531,000. The unemployment rate fell to 4.6%, and further declines are expected. With clear signs of rising material prices and expected wage gains from a hot labor market, the Federal Reserve is reducing its accommodative monetary policy stance.
While the federal funds rate is being held near 0%, the Fed has announced the beginning of tapering, or reducing, its purchases of mortgage-backed securities and Treasuries. This process is expected to end by mid-2022, during which time interest rates should gradually increase.
Inflation data show why the Fed is pulling back on stimulus: Year-over-year consumer inflation in October was up 6.2% — the strongest reading in 30 years. Moreover, the October Producer Price Index recorded its fastest pace in 11 years with an 8.6% year-over-year gain for wholesale prices. Additional PPI data revealed that the prices of all inputs, including energy, used for residential construction purposes has increased 14.5% year to date in 2021 — eight times faster than they did in 2020.
To subscribe for free to Eye on the Economy, please visit the e-Newsletters page.
Latest from NAHBNow
May 30, 2025
NAHB Members Provide Final Recommendations for New WOTUS RuleNAHB members concluded their participation in multiple “waters of the United States” (WOTUS) listening sessions with strong showings in Washington, D.C., and Salt Lake City. In total, 12 NAHB members and four staff members from NAHB and state home builder associations (HBAs), representing 11 states, provided oral statements at listening sessions.
May 30, 2025
Statement from NAHB Chairman Buddy Hughes on DOL Decision to Pause Job Corps Center OperationsNAHB Chairman Buddy Hughes issued the following statement after the Department of Labor announced it was pausing Job Corps center operations nationwide.
Latest Economic News
May 30, 2025
Multifamily Absorption Moves Lower for New ApartmentsThe percentage of new apartment units that were absorbed within three months after completion continued to trend lower, according to the Census Bureau’s latest release of the Survey of Market Absorption of New Multifamily Units (SOMA).
May 29, 2025
Treasury Yield Increase Drives Mortgage Rates Higher in MayMortgage rates continued their upward trend in May due to market volatility triggered by fiscal concerns and weaker U.S. Treasury demand. According to Freddie Mac, the average 30-year fixed-rate mortgage rose to 6.82% — a 9-basis-point (bps) increase from April. The 15-year fixed-rate mortgage increased by 5 bps to 5.95%.
May 28, 2025
Aging-in-Place Remodeling Work Fell While Familiarity and Receptiveness Remain HighOnly 56% of professional remodelers undertake projects designed to allow homeowners to Age-in-Place (AIP), according to results from NAHB’s Q1 2025 Remodeling Market Index (RMI) survey.