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Inflation is finally cooling in Q2 2023

Inflation is finally cooling in Q2 2023
by Brad Cartier, posted in Newsletter

There was a flurry of new construction data this past week reported on by the National Association of Home Builders (NAHB) on the construction industry, starting with building material pricing.

  • According to NAHB, building materials jumped 0.3% in March 2023. Since declining in the last four months of 2022, the index has jumped the last three months by a total of 1.6%. 
  • Ready-mix concrete (RMC) prices continued to soar, increasing 13.1% year-over-year and 24.2% since January 2021.
  • Softwood lumber dropped 4.0% in March, the eighth month of consecutive decline. Since its peak in March 2022, lumber has fallen by 52.5%. 
  • A second NAHB report outlines that the Remodeling Market Index in Q1 2023 posted a reading of 70, increasing 1 point from Q4 2022.

Remodeling sentiment still high

Source: NAHB (April 2023)

In reporting on NAHB’s remodeling data, Brooklee Han of Housing Wire quotes Alan Archuleta, NAHB’s Remodelers Chair, as stating: “Remodelers are generally optimistic about the home improvement market, although some are noting negative effects of material shortages and higher interest rates…Customers are still undertaking larger projects, but are mostly paying cash rather than financing them.”

Robert Dietz of NAHB also reports on builder sentiment, which edged slightly higher in March due to a shortage of resale activity in the broader housing market, pushing buyers to new build purchases. Currently, around a third of all housing inventory is new construction, compared to the historical norm of 10%. 


According to Fan-Yu Kuo of the NAHB, March consumer prices witnessed the smallest year-over-year gain since May 2021, and was the ninth straight month of inflation deceleration. That said, shelter costs are still on the rise.

Inflation slowing

Source: NAHB (April 2023)

The cooling is the lowest inflation level for two years, according to Gwynn Guilford and Nick Timiraos of The Wall Street Journal (subscription required). The Consumer Price Index (CPI) rose 5% year-over-year, but that the elevated number will still leave the door open for a potential interest rate hike at the Federal Reserve’s May meeting.

Megan Henney of FOX Business reports on wholesale inflation, which shows prices before it reaches consumers, which dropped 0.5% in March, the largest drop in 3 years. Annually, wholesale inflation prices are up 2.7%.

Orphe Divounguy of Zillow reports on the inflation data and real estate, noting that “[t]he latest inflation data is a step in the right direction and longer term yields – including mortgage rates – fell on the news. When mortgage rates fell in January, housing sales ticked up slightly above normal for that time of the year. Home buyers are stretched thin when it comes to affordability and even a small improvement would support housing market activity this spring.”

Finally, according to Nicole Goodkind of CNN, some experts believe that inflation rates have hit an inflection point and that painful interest rate hikes may be a thing of the past.

Multifamily update

In multifamily news, Yardi Matrix released its March report, outlining that demand for the asset class has remained strong, pushing rents up $3 in March to an average of $1,706. That said, rent growth fell by 4% nationally.

Multifamily rents

Source: Yardi Matrix (April 2023)

Yardi Matrix concludes that “[a]lthough financial markets remain volatile due to the collapse of several banks, multifamily property fundamentals are stable.”

Similarly, released its Rent Growth Report for Q1 2023, showing that while 104,000 apartment units were newly delivered, the vacancy rate increased only 30 basis points to 6.7%. Further, slightly over 1 million units are under construction, the largest number of new units delivered since the mid-1980s. This will put upward pressure on vacancy rates and downward pressure on rents.

Jay Lybik, National Director of Multifamily Analytics at CoStar Group, notes:

“While we kicked off 2023 with positive monthly rent growth in January and February, we’ve still witnessed signs of weakness across the multifamily sector…Economic uncertainty has suppressed household formations, and consumer confidence sits at low levels due to high inflation, Fed interest rate hikes and recession fears. Despite these headwinds, the deterioration of multifamily fundamentals appears to be slowing. However, the record supply still under construction and the economic uncertainty continue to weigh on the multifamily market.”

Lending is down in the multifamily sector, with the Mortgage Bankers Association (MBA) reporting that commercial and multifamily mortgage bankers closed $595 billion of loans in 2022, a 13% from 2021.

Jack Rogers of Globe St reports on estimates from Green Street, showing that multifamily values are down 20% from their peak. And, “[a]t the same time, rent growth is slowing, which means some properties with large, floating-rate mortgages no longer generate enough profits to make debt payments.”

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