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Friday Market Update for the Week of August 13th 2021

Happy Friday, Brian Manning here with the weekly update. Let’s see. So Monday this week, we got some feedback on new construction. So in the first half of 2021, new construction began for 563,000 new homes across the US, this is a very high number. Still, unfortunately, not meeting the demand. But still really great to see such a high number of new home starts. Tuesday this week, we had New York Fed president talking about prediction of rents and the prediction of rents was that they will increase by about 8%. I’m not really surprised by that, because then you see such a run up in home prices and the appreciation that we’ve had over the last 12 months, certainly rents are going to catch up with that at some point in time. I mean, 8% is a pretty significant number, I’m not really sure we’re going to see it go that high. But without a doubt, if you’re a first time home buyer and you’re thinking about buying a house and you’re looking at the prices of homes right now, by now you should also be weighing in the cost of rents going up by 8% and look at the benefits of buying versus renting, because there’s definitely some significant advantages there.

Wednesday this week we got CPI. So CPI is the Consumer Price Index. It’s our favorite gauge of inflation. And we look at the core rate of CPI. So the core rate strips out volatile items such as food and energy. On a month over month basis, the core rate rose by 3/10%. On a year over year basis, so we saw the CPI number go from a 4.5% rate to 4.3%. So still running hot, and definitely higher than what the Fed had always said they wanted to see at a 2% inflation rate. But good to see it calm down a little bit. Thursday this week we got the PPI. So PPI stands for the Producer Price Index, it measures inflation at a wholesale level. Typically, this is a report that a lot of people don’t pay attention to because wholesale inflation doesn’t really come into play all that often. But right now when we see inflation running hot, more and more people are paying attention to this report. So also looking at the core level, which includes stripping out of the volatile items such as food and energy, on a year over year basis, the PPI was up 6.2%. So wholesale inflation is definitely running hot, which typically now will translate to hot retail inflation as well. So we’re going to have to keep an eye on inflation numbers and see what happens there. There’s been a lot of talk about this lately, the Federal Reserve thinks that it’s going to be transitory. Perhaps it is because really good CPI number going from 4.5% to 4.3%. But if the PPI and the wholesale level is a leading indicator, it’s something for us to keep an eye on.

Today, we got feedback on lumber prices. So lumber prices today, compared to the month of May are down 50% which seemingly would be great news for new construction and builders. The challenge that we’re going to see is that suppliers have already stocked up on lumber based on the higher prices. So if you bought lumber at a higher price, you’re definitely not going to sell it back out at a lower price just because lumber prices are down right now. So it’s kind of unsure how long it’s going to take for the 50% drop in lumber prices that we’re seeing right now at a wholesale level transfer out to our builders in new construction. Something for us to keep an eye on but it’s definitely good to see lumber prices going in the right direction. I’m around all weekend. If you have any questions let me know, I’d love to help you in any way I can. Call me, text me. Happy Friday. Have a great day.

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