Navigating the Housing Squeeze: Construction Up, Optimism Down

Residential construction held up well last month amid tight inventories.
Building permits are back to last year’s levels.
Multi-family construction remains relatively soft.
Consumers view the current buying climate for houses as the worst in recent history.

Home inventories are further impacted by more Americans choosing to remain in their current residences due to high mortgage rates.

The index of leading economic indicators (LEI) has recorded its 19th consecutive monthly decline.

The LEI is down 11.7% from the peak. How does the latest decline compare to previous downturns?

While some sentiment measures from surveys show pessimism, hard data indicators, such as consumer spending, have been resilient.
We also see this divergence in the NFIB small business data.

US financial conditions continue to ease, driven by lower Treasury yields, tighter credit spreads, higher equity prices, and a lower US Dollar.
Existing home sales remain at multi-year lows …

… amid depressed affordability (which is not expected to improve much next year).
The median home sales price reached a new record for this time of the year.

At their last meeting, the FOMC signaled a cautious approach towards additional rate hikes.
FOMC Minutes: – In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time. All participants agreed that the Committee was in a position to proceed carefully and that policy decisions at every meeting would continue to be based on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.
The 10-year Treasury yield edged lower.

It may be a while before we see the Fed’s first rate cut. The central bank has not previously cut rates with core CPI above 2.7% unless unemployment has also been comfortably above 5%.