According to the U.S. Bureau of Labor Statistics, consumer prices were unchanged on a seasonal basis in October after rising 0.4% in September. According to the Consumer Price Index, the inflation rate has increased by 3.2% over the past 12 months.
In October, the index for housing–which makes up more than 40% of core CPI — grew by 0.4%. This offset a fall in the index for gasoline in October. Other indexes that rose in October included:
- The motor vehicle insurance index (+1.9%),.
- Recreation index (+3.2%),.
- Personal care index (+6.0%), and the index for household furnishings and operations (+1.7%).
In October, the indexes of owners’ equivalent rents (OER) and primary residence rents increased by a combined 0.5%. According to an NAHB analysis, the monthly increase in OER has averaged 0.5% in the last ten months and is the biggest contributor to headline inflation.
The Fed has limited ability to deal with rising housing costs, as the rise in shelter costs is driven by an increase in development costs and a lack of affordable supply. The primary way to curb housing inflation is by increasing the housing supply. The Fed has limited tools to promote housing supply. The NAHB’s analysis of the CPI Report states that further tightening monetary policy would hurt the housing supply because it would increase the cost of AD & C finance. The NAHB forecast predicts that shelter costs will continue to decline in 2023. This is supported by data from private data suppliers, which indicate a slowing in rent growth.
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Housing Market Report
The housing market continues to be affected by affordability shocks, especially existing home sales. Mortgage rates were near 8% in October, and the monthly payment for many major markets in January 2022 was 60% more than it was in October.
We have seen that this low resell stock has pushed people to the new home market. Wolf explained that the resale stock is not just limited but also aging and costly. “New homes are usually more expensive than existing ones.” The price gap has been narrowing.”
Even though the market is booming, the impact of “seasonality” plus on the ground has been felt by builders. Tim Sullivan, chief advisory officer at Zonda, said that builders surveyed were often referring to “scarce lands,” “expensive & undersupplied,” a “challenging costs environment,” being “price-sensitive,” “cautious,” or “slowing & competitive.”
According to Sullivan’s research, builders are still enthusiastic about buying land, but it is getting more expensive. Zonda surveyed 43 percent of builders who said they were pursuing land acquisition “at full speed,” while 53 percent are moving cautiously. As land demand increases, so do prices. According to 40% of builders surveyed, land prices have increased.
Sullivan stated that affordability is becoming a greater concern for home builders. Consumer confidence, affordability of new homes, and economic uncertainty are all ranked as the top three concerns for home builders. In October, 71% said that they had not raised prices, and an additional 13% had lowered the base price.
He noted that “flex dollars, money for closing costs and mortgage rate buydowns [have been effective incentives].” The builders target the sweet spot for buydowns, which is between mid-5 and mid-6.