Weekly Economic Snapshot: Confidence Falls, Housing Stumbles, and Uncertainty Grows

Last week’s economic data reflected growing uncertainty. Consumer sentiment declined as inflation worries and uncertainty over tariffs weighed on confidence. The housing market showed signs of strain, with elevated mortgage rates, high prices, and looming tariffs clouding the outlook. Meanwhile, markets reached two all-time highs before retreating, as investors weighed geopolitical uncertainty, shifting trade policies, inflation risks, and insights from the Fed’s latest meeting.

The housing indicators discussed in this article could impact home builders and residential real-estate ETFs such as Invesco Dynamic Building & Construction ETF (PKB A), iShares U.S. Home Construction ETF (ITB A), SPDR S&P Homebuilders ETF (XHB A+), and iShares Residential and Multisector Real Estate ETF (REZ A-).

Consumer sentiment plummeted to its lowest level since November 2023 this month, according to the final report for the Michigan Consumer Sentiment Index. The index fell for a second consecutive month, dropping 6.4 points to 64.7. This represents a 9.0% decline from January’s final reading and a 15.9% drop from a year ago, coming in below the expected 67.3.

Both the current conditions and future expectations components declined this month, as respondents expressed growing concerns about tariffs and inflation. Consequently, inflation expectations surged. Short-term expectations jumped to 4.3%, the highest level since November 2023, while long-term expectations climbed to 3.5%, the highest since 1995.

The Consumer Discretionary Select Sector SPDR ETF (XLY A) is tied to consumer sentiment.

Existing Home Sales

Existing home sales began the year with their first decline in four months. In January, sales retreated 4.9% to a seasonally adjusted annual rate of 4.08 million units, the largest monthly drop since 2022. Despite the monthly decline, existing home sales are up 2.0% from a year ago, marking the fourth consecutive month of year-over-year increases following 37 months of declines. The latest figure was lower than the expected 4.13 million.

Housing affordability remains a challenge as mortgage and home prices remain elevated. With that said, the median price for an existing home fell for a third straight month in January, dipping below $400,000 for the first time since May. This marks a 1.7% decline from December and a 4.8% increase from a year ago, the 19th consecutive month of annual increases.

NAHB Housing Market Index

Builder confidence took a sharp hit this month as concerns over tariffs, elevated mortgage rates, and high housing costs weighed on sentiment. The NAHB Housing Market Index, which measures builder opinion  on current and future home sales, fell five points to 42, its lowest level since September and below the expected 46. This marks the steepest decline in nine months.

The index is calculated based on three components: current sales, expected sales over the next six months, and prospective buyer traffic. In February, all three weakened, with future sales expectations plummeting to its lowest level since 2023.

Housing Starts and Building Permits

New home construction fell sharply in January amid winter weather disruptions. Housing starts tumbled 9.8% to a seasonally adjusted annual rate of 1.366 million units, below the forecasted rate of 1.390 million units. This marked the largest monthly decline in housing starts in ten months and a 0.7% drop compared to one year ago. Both single and multi-family unit housing starts decreased last month.

In contrast, new residential building permits unexpectedly increased last month. Building permits inched up 0.1% to a seasonally adjusted annual rate of 1.483 million, above the forecasted rate of 1.460 million. However, they remain 1.7% lower than a year ago, marking a 12th consecutive month of year-over-year declines. Single family units saw a decline in building permits last month while residences with 2-4 units and multi-family units saw increases. Building permits play a pivotal role in gauging future construction activity, making them a crucial indicator of housing market demand.

For the past few years, consumers have navigated the complex equation of limited housing inventory and elevated rates, which has helped keep housing starts and building permits relatively supported. Now, tariffs add another variable to the mix, likely increasing building costs and leaving the homebuilding outlook murky.

Zillow Home Value Index

U.S. home values continued to rise in January, notching a new record high for an 18th straight month. The Zillow Home Value Index increased for a 22nd consecutive month coming in at $355,328, representing the typical value for a home in the U.S. The index is up 0.2% from December and up 2.7% from one year ago. However, when adjusted for inflation using the latest Consumer Price Index, “real” home values dropped for a ninth straight month to the lowest level since May 2021. The inflation-adjusted index is down 0.1% from December and down 1.8% from one year ago. The ZHVI is a lesser known home value measure but is meant to be a timely, comprehensive, and transparent alternative.

In a holiday-shortened week, the S&P 500 notched two new record highs but also logged its worst day of the year, falling 1.7% on Friday. The index is up 2.5% year to date. Meanwhile, the S&P Equal Weight Index fell 0.8% from the previous week and is up 2.7% year to date.

The 10-year Treasury yield finished the week at 4.42%, its lowest level since mid-December. Meanwhile, the 2-year note finished at 4.19%.

According to the CME FedWatch Tool, markets currently anticipate two rate cuts in 2025. The first coming at the June 18th meeting and the second at the December 10th meeting.

The economic calendar is full for the last week of February. The Bureau of Economic Analysis will release its second estimate of Q4 GDP, providing an updated look at economic growth. Meanwhile, the Department of Commerce will unveil the latest inflation data with the PCE Price Index, the Fed’s preferred inflation measure, which will be closely analyzed for signs of progress toward the 2% target.

Additionally, more housing data will be in focus, with reports on January’s new and pending home sales, as well as home price indexes from the FHFA and S&P Case-Shiller. Rounding out the week, the Conference Board’s Consumer Confidence Index and the ISM’s Chicago PMI will offer fresh insights into consumer sentiment and regional manufacturing activity.

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