Economic Indicators and Housing Market, February 2025
This Shining Star Funding report from February 2025 reviews recent economic indicators with a focus on the housing market. It notes that inflation met expectations, while new and pending home sales showed a decline. Despite the sales slowdown, national home prices continued an upward trend. The report also touches on GDP growth and unemployment claims, and it outlines key economic data to watch in the coming week, alongside a brief technical analysis of mortgage bonds and Treasury yields.
Briefing Document: February 24th, 2025 Housing and Economic Indicators
Date: February 25th, 2025
Overview:
This briefing document summarizes the key economic and housing market trends highlighted in Shining Star Funding’s review for the week of February 24th, 2025. The report indicates that while inflation, as measured by the Federal Reserve’s preferred metric, met expectations, the housing market showed signs of stagnation with declining new and pending home sales, despite continued upward pressure on national home prices. The report also touches upon GDP growth and initial unemployment claims.
Main Themes and Key Findings:
Inflation Moderation Aligns with Expectations:
The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE), met projections for January 2025.
Headline PCE rose 0.3% month-over-month, with the year-over-year rate decreasing from 2.6% to 2.5%.
Core PCE (excluding food and energy) also increased by 0.3% monthly, and the annual rate fell from an upwardly revised 2.9% to 2.6%, reaching a near four-year low.
Key Quote: “Headline PCE rose 0.3% from December, with the year-over-year rate falling from 2.6% to 2.5%. Core PCE… also increased 0.3% monthly, while the annual rate fell from an upwardly revised 2.9% to 2.6%, reaching one of the lowest levels in four years.”
Shelter costs, a significant component of Core PCE (18%), are starting to align more favorably with real-time rental data, suggesting further potential for decreases in annual inflation readings.
Key Insight: The alignment of PCE with estimates provides some reassurance regarding the trajectory of inflation and its potential impact on future Federal Reserve policy.
Stalling Home Sales Despite Price Appreciation:
Sluggish New Home Sales: New home sales in January fell short of expectations, with signed contracts dropping 10.5% from December. This was partly attributed to high interest rates and adverse winter weather, particularly in the South.
Year-over-year, new home sales decreased by 1.1%.
Despite the monthly decline, December’s sales figures were revised upwards.
Key Insight: While limited existing home inventory and strong buyer demand are directing attention to new construction, the current level of new home inventory (495,000) with a significant portion under construction or not yet started (380,000) is insufficient to meet buyer interest.
Plummeting Pending Home Sales: Pending home sales, reflecting signed contracts on existing homes, fell for the second consecutive month, declining by 4.6% from December to January, reaching a record low.
Key Quote (Lawrence Yun, NAR Chief Economist): “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months.” He also noted that even a slight decrease in mortgage rates could “ignite buyer interest, given rising incomes, increased jobs and more inventory choices.”
“Upward Trend” in National Home Prices: Despite the slowdown in sales, the Case-Shiller Home Price Index reported a 0.5% increase in national home prices from November to December (seasonally adjusted).
Year-over-year, national home values rose by 3.9% in December, an increase from November’s 3.7% gain.
Major urban markets showed stronger growth, with the 10-city composite index up 5.1% year-over-year and the 20-city index up 4.5%.
The FHFA House Price Index also showed a 0.4% monthly increase and a 4.7% year-over-year increase.
Key Quote (Brian D. Luke, S&P DJI): The Case-Shiller Index “continues to highlight the upward trend of home prices nationally.”
Key Insight: The divergence between stagnant/declining sales and rising prices suggests a market grappling with affordability challenges due to high interest rates and potentially limited inventory in desirable areas.
Mixed Signals in Broader Economic Data:
Stable GDP Growth: The second estimate for fourth quarter 2024 GDP confirmed a growth rate of 2.3%, driven by rising government and consumer spending, but tempered by declining investment.
Rising Initial Jobless Claims: Initial Jobless Claims increased by 22,000 to 242,000, reaching their highest level since early December.
Elevated Continuing Claims: Continuing Claims remained high at over 1.8 million for the thirty-eighth consecutive week, indicating potentially longer periods of unemployment for those who lose their jobs.
Future Outlook and Factors to Watch:
The report highlights the importance of upcoming labor market data, including private payrolls, unemployment claims, and the non-farm payrolls and unemployment rate, for further insights into the economic outlook.
The “Technical Picture” suggests potential upward movement for Mortgage Bonds if they can break through resistance levels, which could lead to lower mortgage rates. Conversely, the 10-year Treasury yield falling below its 200-day moving average suggests potential for further yield improvement (likely meaning lower rates).
Conclusion:
The economic landscape in late February 2025 presents a mixed picture. While inflation appears to be moderating as anticipated, the housing market is showing signs of strain with declining sales activity despite continued price appreciation. High interest rates are cited as a contributing factor to the housing slowdown. The labor market data also warrants attention, with rising initial jobless claims suggesting a potential softening. The upcoming week’s labor reports will be crucial in providing further clarity on the direction of the economy. The potential for lower mortgage rates, as suggested by the technical analysis, could provide some relief to the struggling housing market.
Podcast: Economic Indicators and Housing Market, February 2025
FAQs
How did the Federal Reserve’s preferred inflation measure, the Personal Consumption
Expenditures (PCE) index, perform in January 2025?
In January 2025, the headline PCE rose by 0.3% from December, and the year-over-year rate decreased from 2.6% to 2.5%, aligning with projections. Core PCE, which excludes volatile food and energy prices, also increased by 0.3% monthly, with its annual rate falling from an upwardly revised 2.9% to 2.6%. This annual core PCE rate represented one of the lowest levels seen in the past four years.
What was the status of new and pending home sales at the start of 2025?
New home sales fell short of expectations in January 2025, with signed contracts dropping by 10.5% compared to December. This decline was partly attributed to high interest rates and unfavorable winter weather, particularly in the South. Year-over-year, new home sales were down by 1.1%. Pending home sales also experienced a downturn, falling by 4.6% from December to January, marking the second consecutive monthly decrease and reaching a record low. This metric reflects signed contracts on existing homes and is a key indicator of future housing market performance.
How did home prices trend nationally according to different indices?
The Case-Shiller Home Price Index reported a 0.5% increase in national home prices from November to December 2024, after seasonal adjustments. On a year-over-year basis, home values in December rose by 3.9%, building on the previous month’s 3.7% gain. The 10-city and 20-city composite indices showed even stronger year-over-year increases of 5.1% and 4.5%, respectively, indicating robust growth in major urban areas. Similarly, the Federal Housing Finance Agency’s (FHFA) House Price Index indicated a seasonally adjusted increase of 0.4% from November to December, with prices 4.7% higher than the previous year.
What factors are believed to be influencing the current state of the housing market?
Several factors are influencing the housing market. High interest rates and limited inventory of existing homes are key contributors to sluggish sales. Adverse winter weather in January also played a role in the decline of new home sales. Despite these challenges, strong buyer demand is evident, particularly in the new construction market due to the limited existing home inventory. High home prices and mortgage rates are impacting affordability, but even a slight decrease in rates could potentially reignite buyer interest, especially with rising incomes, job growth, and more inventory choices.
What is the significance of shelter costs in the context of inflation?
Shelter costs are a significant component of the Core PCE, accounting for 18% of the index. While government reports on shelter costs have been elevated compared to more real-time rental data, they have begun to align more favorably. This alignment is crucial because as the PCE better reflects softer real-time rental trends, it is expected to contribute to a decrease in annual inflation readings and help the Federal Reserve in its progress toward the 2% inflation target.
What are some key takeaways regarding the broader U.S. economy beyond the housing market?
The second estimate for the fourth quarter of 2024 indicated that the U.S. economy grew by 2.3%, matching the initial report. This growth was primarily driven by increased government and consumer spending, although it was tempered by declining investment. Initial Jobless Claims reached their highest level since early December, while Continuing Claims remained elevated, suggesting that unemployed individuals are experiencing longer periods of unemployment.
What upcoming economic data should be closely monitored in the near term?
The economic calendar for the upcoming week (following February 24, 2025) features several important labor market reports. These include private payroll data released on Wednesday, unemployment claims on Thursday, and the non-farm payrolls and the unemployment rate, both scheduled for Friday. These reports will provide further insights into the strength of the labor market.
What is the current technical outlook for mortgage bonds and the 10-year Treasury yield?
Mortgage Bonds closed the previous week challenging overhead resistance at 101.55, a level not seen since early December. If bonds can sustain a move above this resistance, there could be further upward potential before reaching the next resistance level at 101.73. Concurrently, the 10-year Treasury yield has fallen below its 200-day moving average, suggesting potential for additional yield improvement before encountering support at the 4.126% Fibonacci level.
Understand the Report
What is the Federal Reserve’s preferred measure of inflation, and what were its key findings in January 2025 according to the report?
The Federal Reserve’s preferred inflation metric is the Personal Consumption Expenditures (PCE) index. In January 2025, headline PCE rose 0.3% monthly with the year-over-year rate falling to 2.5%, while core PCE also increased 0.3% monthly with the annual rate decreasing to 2.6%.
How did new home sales perform in January 2025 compared to estimates and the previous year, and what were the contributing factors?
New home sales fell short of estimates in January 2025, dropping 10.5% from December and 1.1% year-over-year. This decline was partly attributed to high interest rates and adverse winter weather, particularly in the South.
What does the Pending Home Sales index measure, and what was the significant finding for January 2025? What possible reason did NAR’s Chief Economist suggest for this finding?
The Pending Home Sales index measures signed contracts on existing homes and is a key predictor of housing market performance. In January 2025, it plummeted to a record low, declining 4.6% from December. NAR’s Chief Economist suggested that the coldest January in 25 years might have contributed to fewer buyers in the market.
According to the Case-Shiller Home Price Index and the FHFA House Price Index, what was the general trend in national home prices leading up to December 2024? What is a key difference between these two indices?
Both the Case-Shiller Home Price Index and the FHFA House Price Index indicated an upward trend in national home prices leading up to December 2024. A key difference is that the FHFA’s measurement excludes cash buyers and jumbo loans, focusing solely on conventional mortgage financing.
What were the main drivers of the U.S. economy’s 2.3% growth in the fourth quarter of 2024, and what was one area that saw a decline?
The main drivers of the U.S. economy’s 2.3% growth in Q4 2024 were rising government and consumer spending. Declining investment tempered this growth.
What was notable about Initial Jobless Claims and Continuing Claims in the reported week, and what might Continuing Claims suggest about the unemployment situation?
Initial Jobless Claims reached their highest level since early December, while Continuing Claims remained elevated above 1.8 million for the thirty-eighth straight week. Elevated Continuing Claims suggest longer unemployment periods for job seekers.
What key labor market reports were scheduled for the week following February 24th, 2025?
The key labor market reports scheduled for the week following February 24th, 2025, included private payrolls on Wednesday, unemployment claims on Thursday, and the non-farm payrolls and unemployment rate on Friday.
What was the technical situation for Mortgage Bonds at the close of the reported week, and what potential movement was indicated?
Mortgage Bonds closed the week challenging overhead resistance at 101.55, a level not seen since early December. A confirmation of this upward move could lead to further gains before encountering the next resistance at 101.73.
What happened with the 10-year Treasury yield in the reported week, and what level might it encounter next as a floor?
The 10-year Treasury yield fell below its 200-day moving average in the reported week. This suggests potential for further yield improvement before reaching the next floor at the 4.126% Fibonacci level.
According to Brian D. Luke of S&P DJI, what does the Case-Shiller Index continue to highlight, and what example illustrates the potential benefit of home price appreciation?
Brian D. Luke remarked that the Case-Shiller Index continues to highlight the upward trend of home prices nationally. He illustrated this with an example: a $600,000 home appreciating by 4% over a year could result in a $24,000 gain.
Glossary Key Terms
Inflation: The rate at which the general level of prices for goods and services is rising, and consequently, the purchasing power of currency is falling.
Personal Consumption Expenditures (PCE): A measure of goods and services purchased by persons in the U.S.; the Federal Reserve’s preferred inflation gauge.
Core PCE: PCE excluding food and energy prices, which tend to be more volatile.
Shelter Costs: The expenses associated with housing, including rent and owners’ equivalent rent, a significant component of inflation measures.
New Home Sales: The number of newly constructed homes that were sold during a specific period.
Pending Home Sales: A leading indicator for the housing market, representing the number of existing homes under contract to be sold.
Case-Shiller Home Price Index: A leading measure of U.S. residential real estate prices, tracking the value of single-family housing in 20 metropolitan areas.
Federal Housing Finance Agency (FHFA) House Price Index: A measure of single-family house prices in the United States, based on data obtained from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.
GDP (Gross Domestic Product): The total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.
Initial Jobless Claims: A measure of the number of people filing for unemployment benefits for the first time during a specific week.
Continuing Claims: A measure of the number of people who have been receiving unemployment benefits for at least two consecutive weeks.
Mortgage Bonds: Debt obligations that are secured by a pool of mortgages. Their performance can indicate investor sentiment towards the housing market and interest rates.
10-Year Treasury Yield: The return on investment for U.S. Treasury bonds with a maturity of 10 years, often used as a benchmark for other interest rates, including mortgage rates.
200-Day Moving Average: A technical analysis indicator representing the average closing price of a security over the past 200 trading days, used to identify long-term trends.
Fibonacci Level: Horizontal lines on a price chart that indicate potential areas of support or resistance based on Fibonacci ratios; used in technical analysis.
Sources
Lawrence Yun: Chief Economist for the National Association of REALTORS® (NAR). He commented on the drop in pending home sales in January 2025, suggesting that cold weather might have played a role and that a slight decrease in mortgage rates could stimulate buyer interest.
Brian D. Luke: Head of Commodities at S&P DJI. He provided commentary on the Case-Shiller Home Price Index, highlighting the continued upward trend in national home prices and illustrating the potential for wealth building through homeownership.
Federal Reserve: The central banking system of the United States. The article discusses the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, and its progress towards the 2% inflation target. The Fed’s monetary policy, particularly regarding interest rates, is also noted as a factor influencing the housing market.
National Association of REALTORS® (NAR): A trade association for real estate professionals. They release data on pending home sales, which is discussed in the article as a key predictor of housing market performance.
S&P DJI (S&P Dow Jones Indices): A provider of financial market indices. They compile and release the Case-Shiller Home Price Index, a widely recognized measure of home value appreciation.
Federal Housing Finance Agency (FHFA): A federal agency responsible for the oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. They also release the FHFA House Price Index, another measure of home price changes that focuses on conventional mortgage financing.
MBS Highway: A service provider for mortgage and treasury rates and analysis thereof.
