Article source: ConstructConnect

The negative impact of higher interest rates on U.S. housing starts has been dissipating since late summer 2023, culminating in a near normal month for residential groundbreakings in November.

The 1.560 million units (annualized) reported for November was a decent jump upwards from the low point of 1.305 million units in August (see accompanying Graph 1). Furthermore, it was quite close to the ‘equilibrium’ position as set out in Graph 2.

(more…)

Article source: ConstructConnect

In 2021 and the first half of 2022, there were what might be termed ‘freakish’ year-over-year increases in construction material costs (see Graph 1). At its most extreme, the y/y price climb for construction material inputs collectively approached plus one third.

Since then, they have largely settled down, to the point where y/y material input costs are now being exceeded by y/y wage hikes (i.e., -0.5% compared with +5.9% as set out in Graph 1).

Graph 2 shows that it took a while for contractors to ratchet up bid prices to cover their material cost increases. There’s a bottom line, however, and it’s that construction material input costs and bid prices are both now up close to +40% compared with their pre-COVID positions.

(more…)

Article source: ConstructConnect

The Federal Reserve and the Bank of Canada have both held the line on interest rates lately. But neither has sworn off the possibility of raising them more at some time in the future.

The Fed’s federal funds rate is in a range between 5.25% and 5.50%. The BoC’s overnight rate is sitting at 5.00%.

Neither central bank is yet convinced that its nation’s inflation rate has been sufficiently suppressed.

In August, the Consumer Price Index for urban dwellers in the U.S. was +3.7% year over year; in Canada, the CPI was +4.0% y/y. In both instances, the y/y advances were a bit more rapid than in the previous month.

(more…)

Article source: ConstructConnect

The month-to-month descending path of U.S. housing starts due to progressive increases in interest/mortgage rates and shock-inducing new and resale home prices has not yet ended (see Graph 1). April 2023’s level of new residential groundbreakings was -28.8% compared with March 2022, moving from 1.803 million units to 1.283 million (both seasonally adjusted and annualized).

Until recently, the downturn was entirely concentrated in the single-family market. Over the last couple of months, however, multi-family starts have also been caught in the downdraft. Where once it appeared there might be convergence of the shares of total unit starts contributed by singles versus multiples, the gap has once again widened considerably, with singles now at more than 70% and multis at less than 30% (Graph 4).

The residential permits data does offer some hope that the slide in starts may be reaching an end. Permits point the way to shovels in the ground (i.e., the starts). The steep descent of permits in 2022, has transitioned to a saw-toothed climb in 2023 (Graph 5). And the sharp compression of the difference between permits and starts, both as 12-month moving totals, has reversed in the latest month (Graph 6).

(more…)

Article source: ConstructConnect

Try thinking like a central banker. Your main goal at the moment is to bring down inflation to around +2.0% year over year. Your primary weapon to achieve that end is high interest rates. They’ll slow consumer spending and housing starts, but they will also cause collateral damage in labor markets. Signs of kinks in jobs creation will be greeted with a smile.

Given this framework for success, how will the Federal Reserve and the Bank of Canada be viewing the latest (July) reports on employment in their respective countries. The Fed will be accepting, but not delighted. The Bank of Canada (BoC) will be pleased, but with a measure of regret.

(more…)

Article source: ConstructConnect

In the Fall of last year, considerable anxiety was induced among investors when the world’s major stock market indices plummeted.

Now, it is nice to be able to report that those days are over. As of July 2023’s month-end closing values, both the DJI and S&P 500 were within 5% of their previous all-time highs; NASDAQ has climbed back to within 10%.

Early in August, a small wrinkle to investing enthusiasm has been delivered by Fitch’s downgrade of U.S. government debt from AAA (i.e., as good as it gets) to AA+ (just a shade below ‘rock solid’).

The timing and the reasoning are interesting. Fitch does not like the fact Washington keeps running into a debt ceiling and there is always a game of brinkmanship in Congress before it is resolved. This does not speak well of America’s efforts at good governance, according to Fitch.

(more…)

Article source: ConstructConnect

As my colleague, Michael Guckes, is wont to say, every economic cycle is different. The study of ‘the dismal science’ (as economics has sometimes been labeled) in school lecture halls pretends otherwise.

Students are taught that actions taken of a certain fiscal or monetary nature will surely lead to predictable specific consequences. Raising income taxes will lower consumer spending; higher interest rates will weaken housing demand; etc. It is the second of these we will concentrate on further along in this article.

Most of these ‘truisms’ retain their power. But as we are finding out every day now, they’re also

being bent and stretched and sometimes even turned inside out because never before has there been three years of worldwide pandemic, accompanied by massive government support spending and a zero interest rate regime that is being followed by intended corrective measures that may not be hitting the mark.

(more…)