In January, we saw a decrease in new home construction but home builder confidence for the future is finally starting to increase. Another encouraging note from last week's reports is the decrease in the annual rate of inflation.
The new year brought a chill to new Housing Starts. We saw a 4.3% decline from December to January in single-family home construction starts and an annual decline of 27.3%. Looking to the future supply, Building Permits for single-family homes also decreased by 1.8% in January and 40% year-over-year. Builders are expected to complete 1.4 million homes this year. Meanwhile, household formations are expected to total around 1.9 million.
While the ongoing lack of supply will continue to support home prices, prospective homebuyers will keep hoping for a boost in production. It won't be immediate but we are seeing signs that increased production could be around the corner. The National Association of Home Builders (NAHB) Housing Market Index posted the second consecutive increase in builder confidence, after a decrease every month last year. In addition, this past reading was the strongest one-month gain in 10 years! This could be a signal of the relief so many homebuyers are looking for.
We received some disappointing inflation readings last week, as both the Consumer Price Index (CPI) and Producer Price Index (PPI) posted monthly increases and higher-than-expected annual readings. The measure of consumer level inflation, CPI, rose by 0.5% in January and decreased only 0.1% annually to 6.4%. The measure of wholesale inflation, PPI, increased by 0.7% in January and decreased annually to 6%.
While these numbers were higher than expected, we are still seeing a decrease in the annual reading and that is progress in the right direction. Given that higher inflation drives mortgage rates up, we hope to continue to see this downward trend.
This week, we'll be receiving some important housing and economic data. Both Existing Home Sales and New Home Sales data will be reported, and we'll also get the minutes from the Fed's last meeting, which could be market-moving. Stay tuned for next week's breakdown!
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