January 27, 2025 – More good news continued to roll in last week to indicate that the economy and the housing market ended 2024 with a positive note. Newly constructed home sales continued to rise, for example, while business optimism reached its highest level since 2018 as policy uncertainty began to clear up. While California had a rough start to begin the year, we should see some improvement as the state gradually recovers from the devastating wildfires. With mortgage rates coming down from their recent high, demand in the housing market will also likely pick up as the market gears up towards its spring homebuying season.

New home sales rise for the second straight month in December: Sales of new single-family homes rose modestly on a month-to-month basis by 3.6% after a strong increase in November. The seasonally adjusted annual rate of 698k in December also marked a 6.7% rise from 654k recorded 12 months ago in December 2023. For the year as a whole, new home sales in 2024 inched up from the prior year by 2.3%. At the regional level, both the Northeast and the West increased solidly by double-digits from November, while sales in the Midwest and the South dipped slightly from the prior month. All regions improved in sales from 12 months ago. New housing inventories dipped for the second consecutive month to 8.5 months after reaching a recent high of 9.4 months in October. New for-sale units remained elevated though and climbed 1.2% from the prior month and 10% from the prior year to 494k. Despite ending the year with a solid note, new home sales will likely encounter some headwinds in the next couple of months as rates continue to stay near their 7-month high and the existing housing supply grows further.

Labor market stays on solid footing at the start of 2025: Jobless claims for the week ending January 18 climbed to 223,000, an increase of 6,000 from 217,000 recorded in the prior week, according to the latest data released by the Department of Labor. The wildfires in Los Angeles and the blizzards across parts of the U.S. are external factors that might have exerted a mild upward shift in the latest reading and resulted in a temporary increase in the number of people filing claims. Despite the rise in new applications for unemployment benefit last week, the increase was slight, and it suggested that the job market should remain stable. While fewer workers were being laid off, job openings for those seeking employment could be shrinking though as employers remain cautious about the current economic conditions. Continuing claims rose 46,000 to 1.899 million in the week ending January 11, reaching the highest level for insured unemployment since November 2021 when 1.974 million continuing claims were recorded.

U.S. single-family home rent growth slows to a 14-year low: U.S. single-family home rent prices went up 1.5% year over year in November, the lowest rate recorded in more than 14 years, according to the latest CoreLogic Single-Family Rent Index. Prices for detached rentals grew 1% year over year, while attached properties increased modestly by 1.7%. High-priced rental units grew faster, with an increase of 2% year over year, whereas low-priced rental units experienced a decline of 2.8% from a year ago. Of the metropolitan areas surveyed, Detroit (+6.1%), Washington D.C. (+5.5%), and Honolulu (+4.3%) had the highest growth rates in November. Six metros recorded negative year-over-year growth in November and San Diego (-0.3%) was one of them that posted an annual rental price loss. With the job market remaining healthy and the demand for rental expected to remain solid, rent growth in general could begin to bounce back in 2025.

Single-family construction continues to improve: U.S. residential construction surprised on the upside in December, but the increase was largely due to a bounce back in the hurricane-impact South region. Total housing starts surged 15.8% from a month ago but was down 4.4% from 12 months ago, according to the latest release from the Census Bureau. The monthly jump in overall housing starts last month was attributed primarily to a sharp increase in multifamily construction, as starts in the category surged 61.5% month over month. On a year-over-year basis, however, the overall pace of multifamily building remained muted with housing starts in December declining 8.4% from 12 months ago. Single-family starts continued to rise for the second straight month and were up in all regions except for the South. For the year as a whole, housing starts for the category increased 6.5% in 2024 compared to 2023. Single-family permits also increased solidly at the end of 2024, but the gain was primarily due to a surge in the hurricane-impacted area in the South. Whether construction activity can keep up its momentum in the coming months, however, is debatable. While interest rates remain elevated, builders could face some headwinds and may slow construction activity in the short term.    

Business optimism reaches six-year high: Small business optimism continued to rise in December, as the NFIB headline index gained another 3.4 points to 105.1 after surging 8 points in November. Business owners got a boost in their sentiment as economic outlook remained solid while public policy has become more certain after the November election. The continued improvement in the index pushed the measure to the highest reading since October 2018. Optimism on the economic outlook was particularly noteworthy, as the net percent of owners who expect the economy to improve rose 16 points to reach the highest level since the fourth quarter of 1983. Sales expectations also increased strongly as the net percent of owners who expect higher sales volume jumped 8 points to reach the highest level since January 2020. With the election behind us, owners now have more clarity on what may happen to taxes and regulations. The coming year, however, will likely be a year with many distractions that could affect business optimism one way or the other.

Note: This summary report gets updated every Monday by 6:00 pm PST. Feel free to email us at [email protected] if you have any questions and/or feedback.