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    in Economy

    New Home Construction Slows as Mortgage Rates Remain High

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    Home building in May fell to its slowest pace in four years despite a supply shortage. That trend could put even greater strain on buyers.Construction of new homes in the United States dropped below expectations in May as builders pull back on new residential projects largely in response to high interest rates, reinforcing concerns about stubbornly high housing prices.Government data released on Thursday showed that new-home construction, or housing starts, fell 5.5 percent last month to an annualized rate of 1.28 million, a sign of more cracks in the already shaky housing market. Slower construction of both single-family and multifamily homes contributed to the overall drop. Building permits dipped 3.8 percent, pointing to less future construction.This downturn in home building comes as the average rate on 30-year mortgages, the nation’s most popular home loan, has reached highs not seen in decades, though the rate dipped slightly this week to 6.87 percent, Freddie Mac reported on Thursday.The magnitude of the decrease in construction last month underscores that high interest rates are both weakening housing demand and raising costs for builders — two dynamics that are ultimately contributing to builders’ reluctance to start projects. Home builder sentiment dropped in May to its lowest level this year before falling even further this month, suggesting relatively tepid home construction data in the coming months, Daniel Vielhaber, an economist at Nationwide, said in a statement.The weakening in construction, in turn, is only putting more strain on prospective home buyers.“If you’re a consumer, if you’re someone looking to buy a home, what you ultimately want is a lot more supply,” said Chen Zhao, who leads the housing economics team at the real estate services company Redfin. “The key to having more housing supply is that we need more building. So any time we see that there is less building, that is bad news.”The latest housing construction data, released by the U.S. Census Bureau and the Department of Housing and Urban Development, reinforces that consumers are unlikely to see home prices drop by much over the next couple of years, Ms. Zhao said. The data point, she added, represents “one more factor that would keep home price growth high” because it points to a tighter housing supply in the next year or two.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    in Economy

    Home Insurance Is Clobbering Consumers. Yet It’s Barely Counted in Inflation.

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    Skyrocketing premiums are hitting homeowners hard, but they barely factor into common price measures.Holly Meyer Lucas estimates that as many as 30 of the 100 houses her real estate team sold in and around Jupiter, Fla., last year were put on the market because their owners could no longer keep up with skyrocketing home insurance.“It is the housing crisis that nobody is talking about,” Ms. Meyer Lucas said. The houses sold easily, but often to well-off cash buyers who could drop the insurance altogether because they did not have a mortgage that required them to carry it.Jumping insurance rates are acute in coastal Florida, with its exposure to big risks like hurricanes and coastal erosion, but they are also a nationwide phenomenon. Last year, premium rates for owner-occupied housing were up 11.3 percent on average nationally, based on data from S&P Global Market Intelligence.Insurance rates have been climbing for a number of reasons: Storms have become more frequent and severe, inflation and labor shortages have driven up the cost of repairs and home values have increased, requiring larger policies. The biggest jumps occurred in Texas, Arizona and Utah, which were among 25 states in total that posted double-digit surges last year. In some places, including Florida, rates are up more than 40 percent over the past five years.That can add up to a major additional annual expense for owners: The typical single-family homeowner with a mortgage backed by Freddie Mac was paying $1,522 in 2023, up from $1,081 in 2018. And that’s simply an average. Anecdotally, many people report seeing their premiums jump by thousands of dollars.Those higher insurance rates are bringing pain to many homeowners, forcing people out of their homes and communities while leaving others taking big risks as they drop insurance altogether. But the rising costs are not meaningfully boosting the nation’s official inflation data, which could help to explain a small part of the disconnect between how people feel about the economy and how it looks on paper. Economic confidence remains depressed and consumers continue to fret about high price levels, dogging the Biden administration, even though inflation has been cooling and the job market is strong.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    in Economy

    Inside the Rent Inflation Measure That Economics Nerds Love to Hate

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    There’s a three-letter abbreviation that economists have started pronouncing with the energy of a four-letter word: “O.E.R.”It stands for owner’s equivalent rent, and it has been used to measure American housing inflation since the 1980s. As its name suggests, it uses a combination of surveys and market data to estimate how much it would cost homeowners to rent the house they live in.But three years into America’s price pop, it has become almost cliché for economists to hate on the housing measure. Detractors blast if for being so slow-moving that it does not reflect up-to-date conditions in the economy. Critics argue that it uses convoluted statistical methods that make little sense. The most intense haters insist that it is giving a false impression about where inflation stands.“It’s just not adding anything to our understanding of inflation,” said Mark Zandi, chief economist of Moody’s Analytics and a frequent adviser to the Biden administration. Full disclosure: The New York Times called Mr. Zandi for this article because he has been one of the many economists grousing about O.E.R. on social media. He said he was “not a fan.”What has this one nerdy inflation component done to earn so much vitriol?It is preventing an economic happy ending, more or less. Housing inflation measures have been surprisingly sticky over the past year, and they are now a major barrier keeping price increases overall from returning to normal. That has knock-on effects: Because of inflation’s staying power, the Federal Reserve is keeping interest rates at a more than two-decade high to try to wrestle prices under control by slowing the economy.But while there’s no denying that O.E.R. has become a main character in America’s inflationary tale, not everyone thinks it is the bad guy. Some economists think it is a valid and reasonable way to measure an important part of the consumer experience. Ahead of a fresh Consumer Price Index report set for release on Wednesday morning, there are a few key facts to understand about how housing inflation is calculated, what it means and what it might do next.Housing Inflation Remains Stubbornly HighEconomists had expected two measures of rental inflation to fade in 2023 and 2024, but that process is taking time to play out.

    Note: Inflation measures are shown as rates of annual change.Source: The Bureau of Labor StatisticsBy The New York TimesConsumer Price Index Inflation Remains HotterThe Consumer Price Index is climbing faster than the Personal Consumption Expenditures index, in large part because it weights housing more heavily.

    Note: Indexes are shown as annual change.Sources: Bureau of Labor Statistics and Commerce DepartmentBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    in Economy

    What Comes Next for the Housing Market?

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    The Federal Reserve still expects to cut rates this year, and a change in selling practices could shake up home shopping. Here’s the outlook.Federal Reserve officials are planning to cut interest rates this year, real estate agents are likely to slash their commissions after a major settlement and President Biden has begun to look for ways his administration can alleviate high housing costs.A lot of change is happening in the housing market, in short. While sales have slowed markedly amid higher interest rates, both home prices and rents remain sharply higher than before the pandemic. The question now is whether the recent developments will cool costs down.Economists who study the housing market said they expected cost increases to be relatively moderate over the next year. But they don’t expect prices to actually come down in most markets, especially for home purchases. Demographic trends are still fueling solid demand, and cheaper mortgages could lure buyers into a market that still has too few homes for sale, even if lower rates could help draw in more supply around the edges.“It has become almost impossible for me to imagine home prices actually going down,” said Glenn Kelman, the chief executive of Redfin. “The constraints on inventory are so profound.”Here’s what is changing and what it could mean for buyers, sellers and renters.Interest rates are expected to fall.Mortgages have been pricey lately in part because the Fed has lifted interest rates to a more-than-two-decade high. The central bank doesn’t set mortgage rates, but its policy moves trickle out to make borrowing more expensive across the economy. Rates on 30-year mortgages have been hovering just below 7 percent, up from below 3 percent as recently at 2021.Those rates could come down when the Fed lowers borrowing costs, particularly if investors come to expect that it will cut rates more notably than what they currently anticipate.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

  • 138 Shares129 Views

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    Email ‘Mistake’ on Inflation Data Prompts Questions on What Is Shared

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    Traders are closely watching once-obscure economic data, prompting more scrutiny of how widely the government distributes the information.One afternoon in late February, an employee at the Bureau of Labor Statistics sent an email about an obscure detail in the way the government calculates inflation — and set off an unlikely firestorm.Economists on Wall Street had spent two weeks puzzling over an unexpected jump in housing costs in the Consumer Price Index. Several had contacted the Bureau of Labor Statistics, which produces the numbers, to inquire. Now, an economist inside the bureau thought he had solved the mystery.In an email addressed to “Super Users,” the economist explained a technical change in the calculation of the housing figures. Then, departing from the bureaucratic language typically used by statistical agencies, he added, “All of you searching for the source of the divergence have found it.”To the inflation obsessives who received the email — and other forecasters who quickly heard about it — the implication was clear: The pop in housing prices in January might have been not a fluke but rather a result of a shift in methodology that could keep inflation elevated longer than economists and Federal Reserve officials had expected. That could, in turn, make the Fed more cautious about cutting interest rates.“I nearly fell off my chair when I saw that,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, a forecasting firm.Huge swaths of Wall Street trade securities are tied to inflation or rates. But the universe of people receiving the email was tiny — about 50 people, the Bureau of Labor Statistics later said.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    in Economy

    The Surprising Left-Right Alliance That Wants More Apartments in Suburbs

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    The YIMBY movement isn’t just for liberals any more. Legislators from both sides of the political divide are working to add duplexes and apartments to single-family neighborhoods.For years, the Yimbytown conference was an ideologically safe space where liberal young professionals could talk to other liberal young professionals about the particular problems of cities with a lot of liberal young professionals: not enough bike lanes and transit, too many restrictive zoning laws.The event began in 2016 in Boulder, Colo., and has ever since revolved around a coalition of left and center Democrats who want to make America’s neighborhoods less exclusive and its housing more dense. (YIMBY, a pro-housing movement that is increasingly an identity, stands for “Yes in my backyard.”)But the vibes and crowd were surprisingly different at this year’s meeting, which was held at the University of Texas at Austin in February. In addition to vegan lunches and name tags with preferred pronouns, the conference included — even celebrated — a group that had until recently been unwelcome: red-state Republicans.The first day featured a speech on changing zoning laws by Greg Gianforte, the Republican governor of Montana, who last year signed a housing package that YIMBYs now refer to as “the Montana Miracle.” Day 2 kicked off with a panel on solutions to Texas’s rising housing costs. One of the speakers was a Republican legislator in Texas who, in addition to being an advocate for loosening land-use regulations, has pushed for a near-total ban on abortions.Anyone who missed these discussions might have instead gone to the panel on bipartisanship where Republican housing reformers from Arizona and Montana talked with a Democratic state senator from Vermont. Or noticed the list of sponsors that, in addition to foundations like Open Philanthropy and Arnold Ventures, included conservative and libertarian organizations like the Mercatus Center, the American Enterprise Institute and the Pacific Legal Foundation.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    in Economy

    How 33-Year-Olds, the Peak Millennials, Are Shaping the U.S. Economy

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    I have covered economics for 11 years now, and in that time, I have come to the realization that I am a statistic. Every time I make a major life choice, I promptly watch it become the thing that everyone is doing that year.I started college in 2009, in the era of all-time-high matriculation rates. When I moved to a big coastal city after graduation, so did a huge crowd of people: It was the age of millennial urbanization. When I lived in a walk-in closet so that I could pay off my student loans (“The yellow paint makes it cheerful!”, Craigslist promised), student debt had recently overtaken auto loans and credit cards as the biggest source of borrowing outside of housing in America.My partner and I bought a house in 2021, along with (seemingly and actually) a huge chunk of the rest of the country. We married in 2022, the year of many, many weddings. The list goes on.I am no simple crowd follower. What I am is 32, about to be 33 in a few weeks.And there are so many of us.If demographics are destiny, the demographic born in 1990 and 1991 was destined to compete for housing, jobs and other resources. Those two birth years, the people set to turn 33 and 34 in 2024, make up the peak of America’s population.As the biggest part of the biggest generation, this hyper-specific age group — call us what you will, but I like “peak millennials” — has moved through the economy like a person squeezing into a too-small sweater. At every life stage, it has stretched a system that was often too small to accommodate it, leaving it somewhat flabby and misshapen in its wake. My cohort has an outsized amount of economic power, but that has sometimes made life harder for us.Early 30-Somethings Are EverywhereIn 2022, America had 4.75 million 32-year-olds and 4.74 million 31-year-olds, the largest two ages by population.

    Source: U.S. Census BureauBy The New York TimesWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More