Builders remained cautiously optimistic in April, as limited resale inventory helped to increase demand in the new home market.
Data continue to show easing inflation, although certainly not at the rate the Federal Reserve and markets would wish. Nonetheless, signs suggest the Fed is near the end of its tightening cycle, which in turn sets the single-family sector on the path toward a rebound later this year and an outright calendar year increase in 2024.
Consumer prices in March saw the smallest year-over-year gain since May 2021, decelerating for the ninth consecutive month. While the shelter index (housing inflation) experienced its smallest monthly gain since November 2022, it continued to be the largest contributor (60%) of the total increase, less food and energy. Overall inflation was up 5% year over year in March, while shelter inflation was up 8.2%.
The Fed’s ability to address rising housing costs is limited, as shelter cost increases are driven by a lack of affordable supply and increasing development costs. Additional housing supply is the primary solution to tame housing inflation. The Fed’s tools for promoting housing supply are at best limited. In fact, further tightening of monetary policy will hurt housing supply by increasing the cost of AD&C financing. Nonetheless, the NAHB forecast expects to see shelter costs decline later in 2023.