Market Trends December 2022
Home Building Shifts to Smaller Markets
New findings from the National Association of Home Builders (NAHB) Home Building Geography Index (HBGI) show a shift in home building activity over the past 30 months, with notable slowing in large, metro urban areas due to people fleeing large metros during the pandemic. Interest rate increases contributed to falling affordability in high-cost and highly regulated markets. In addition, the move to remote and hybrid work has also enabled people to live away from city centers.
Single-family production has slowed in all regional submarkets, both large and small, due to ongoing building material production bottlenecks, construction labor shortages and the Federal Reserve’s tightening monetary policy, according to NAHB. The index shows that the market share for single-family home building in large metro core and inner suburbs fell from 44.5% to 41.6% between the fourth quarter of 2019 (pre-Covid) and the second quarter of 2022.
In contrast, single-family home building in outer suburbs in large and medium sized metros expanded from 17.4% to 19% during the same period. From the fourth quarter of 2019 to the second quarter of 2022, single-family home building market share in small metro core counties increased to 29% from 28.8%. In rural areas, which represent non-metro/micro counties, the home building share rose to 10.4% from 9.4%.
The multifamily market showed a similar pattern over the
same time frame. The market share of multifamily construction in large metro core areas fell from 41.7% in the fourth quarter of 2019 to 39.3% in the second quarter of 2022.
The HBGI is a quarterly measurement of building conditions across the country and uses county-level information about single- and multifamily permits to gauge housing construction growth in various urban and rural geographies.
The Evolution of the American Garage
Many Americans use their garages for everything but parking cars. A new survey from Stanley Black & Decker's Craftsman brand found more than a third of American garages (36%) are so unorganized people can no longer park a vehicle in them. More than half (52%) are unsatisfied with how their garage is organized.
There are more than 82 million garages in the US and according to the survey, more than 60% of Americans with garages feel their garage is the untidiest area in their house. At the same time, 90% of Americans with garages surveyed believe that a well-organized garage can make a small garage appear larger, and over 4 in 5 (85%) cite a well-organized and usable garage as a source of pride.
What’s taking up all that room? Nearly 80% reported that power tools and hand tools were the top products stored in the garage. In addition, 76% keep outdoor tools and equipment inside. In fact, 67% of adults with garages say they have so many tools that keeping them organized is a must. More than half ( 52%) prefer that their tools and storage systems match in their garage.
For many Americans, the garage has become an extension of the home with modern functions such as living areas, home gyms and workspaces. The Craftsman Take Back Your Garage Survey found that 53% of US adults use their garage or workspaces in their home for DIY projects, with millennials being the most frequent at-home DIYers at 62%, followed by Gen X at 56% and Gen Z at 54%. In keeping with these DIY tendencies, 31% of adults with garages report they store arts and crafts materials in their space.
The most common activities in the garage were automotive maintenance and home renovation projects (each 46%), woodworking (41%), leisure activities like socializing and hosting parties (33%), and furniture restoration or redesign (26%).
Power drills were the most common tool stored in the garage, with 56% saying their power drill was their most-used tool, followed by shop vacs at 41%.
Outdoor equipment stored in the garage includes leaf blowers (62%) in their garage, followed by string trimmers (57%), walk-behind lawn mowers (51%), hedge trimmers (49%) and chainsaws (48%).
Black Friday Month
Black Friday has turned into Black November for many retailers, with different weekly deals all month long. Walmart kicked theirs off November 7 and is giving Walmart+ members a several-hours head start on shopping deals. Lowe’s beat them to it, launching their first round of deals November 3 as did The Home Depot. Lowe’s and THD stores will be closed on Thanksgiving as retailers treat employees to the day off to spend with their families knowing that many people will go online shopping sometime Thursday.
Holiday Spending Recap and Forecasts
A record 196.7 million people shopped from Thanksgiving through Cyber Monday. According to the National Retail Federation (NRF), 17 million more people shopped this year than shopped over the same period last year. Total retail sales jumped about 11%, not adjusted for inflation, according to Mastercard SpendingPulse data.
Online sales were up 4% from 2021, according to Adobe Analytics. The five-day weekend, from Thanksgiving through Cyber Monday, generated $35.37 billion in online sales. Black Friday, with $9.12 billion spent, and Thanksgiving, with $5.29 billion, also broke previous online spending records for those days. Cyber Monday sales rose to $11.3 billion from a year earlier, making it the biggest U.S. online shopping day ever.
The percentage of people shopping in stores jumped 17% over last year. Analysts noted that shopping over the holidays is both a traditional and social activity and believe there was pent-up demand for the experience, not just the deals. The number of online shoppers grew by a smaller percentage, rising 2% to 130.2 million online shoppers this year.
After seeing the results from the five-day weekend, NRF feels confident that sales will meet or exceed their forecast of growth between 6% and 8% over 2021 levels to between $942.6 billion and $960.4 billion in November and December. While that would be a step down from the 13.5% growth notched in 2021 it would be well above the 4.9% average over the past 10 years.
Many households are expected to supplement spending with savings and credit to provide a cushion so they can have the holiday season they’ve been looking forward to. Analysts note that the holiday shopping season kicked off even earlier this year as retailers made preemptive moves to capture more of the consumers’ holiday dollar. Many shoppers worried about rising inflation and the availability of products took advantage of early promotions rather than waiting for last-minute deals.
Deloitte’s forecast is a bit more conservative than NRF’s. They expect holiday retail sales will increase between 4% and 6% and ecommerce sales will rise between 12.8% and 14.3% compared to 2021, when online holiday sales grew by 15.1% during the November to January time frame. They believe Inflation is definitely dampening demand and expect consumers to shift how they spend their holiday budget. Inflation may raise dollar sales, but they believe there may be less growth in volume. Deloitte also thinks that rising prices may push more sales online as consumers look for deals. Deloitte recommended that retailers capture available spending dollars by clearly displaying in-stock quantities of hot items and find ways to bundle products and offer unique deals to loyal customers.
Fed Rate Increases May Slow
Now that inflation is slowing, the Fed may also slow the pace of rate increases. They raised rates by another three-quarters of a percent in early November to a range between 3.75% and 4.0%. The last time rates were this high was during the first three weeks of 2008 when the economy was sliding into a deep recession. A series of steep rate cuts quickly followed then. However, the Fed has stated that rates will remain elevated until the economy cools off enough to tamp down persistently high inflation and wage growth. The job market remains very tight; unemployment will need to tick up a bit before wage growth will slow significantly.
Yields on longer-term US Treasuries have fallen further below yields on short-term bonds than at any time in decades, a sign that investors think the Federal Reserve is close to winning its battle against inflation. A scenario in which short-term yields exceed long-term yields is known on Wall Street as an inverted yield curve and is often seen as a red flag that a recession is looming. Yields on Treasuries largely reflect investors’ expectations for what short-term interest rates set by the Fed will average over the life of a bond. Longer-term yields are generally higher than shorter-term yields because investors want to guard against the risk of unexpected inflation and rate increases.
An inverted yield curve means that investors think the Fed will need to slash borrowing costs to revive a faltering economy and are confident that short-term rates will be lower in the longer-term than they will be in the near-term. After digesting the Fed’s official statements, most investors still expect the central bank to raise rates to about 5% by early next year, up from the current level between 3.75% and 4%. However, the latest encouraging report on consumer prices has led many to believe the Fed will start cutting rates in late 2023 and begin promoting economic growth without worrying about promoting high inflation.
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