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After a significant drop in Q2 '23, permits for new construction projects have been trending positively through the remainder of the year, and in Q4 we saw about 4.2% year-over-year growth; meanwhile, year-over-year change in home renovation and addition permits was flat in both Q2 and Q3 of '23, however ticked up to around 1.2% in Q4 '23.

There's been some media buzz around declining remodeling expenditures in 2024. All of these outlets are just sharing what Harvard's JCHS put out recently, which attempts to forecast home improvement expenditures four quarters out. The issue is that the LIRA (JCHS' leading indicator of remodeling activity) has gone through several incarnations (usually in response to changes in their primary data source - the Census) - and the projections get increasingly inaccurate the further out you go (like most projections). I have a lot of respect for the JCHS and the work they do, but their annual roc projections have been really inaccurate over the past few years - the chart below shows the historical difference between their projections, by quarter, and actuals. Granted, I don't really think anybody knew how Covid would impact remodeling expenditures, but even before that, in Q3/19, they projected negative growth of -.3% YoY by Q3/20 however the actuals came in at +2.2% - and this was after a worldwide pandemic. That was the last time they forecast a YoY drop; so I guess we'll see how things pan out after Q1/24 with regard to their most recent release - of course after that release, the Fed announced several rate cuts in '24 and the market has been performing better than expected.

I'm wondering whether someone can explain this to me: 1. The Fed has one lever to pull when it comes to inflation - raising interest rates 2. Higher interest rates = higher cost of shelter for a number of reasons - just to name a few, 1. Higher interest rates has an inverse relation with new housing starts; 2. Higher interest rates has a positive correlation with higher rental rates; 3. I haven't seen the latest numbers, but prior to the spiking interest rates, there already was a deficit of housing units when compared to households, and the rate of new housing unit creation was slower than the rate of new household formations - now, I'm not a PhD in economics like Issi Romem but I'm pretty sure that a deficit in housing supply leads to more demand and that generally has a positive relation with increased prices 3. So what is the logic behind the Fed maintaining high interest rates when cost of shelter seems to be the biggest culprit when it comes to inflation at this point? Just for reference, I've included the YoY change in the CPI vs the YoY change in the ave 30-yr. Since 2000, r=.66