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Inflation slowed to a 3-month low in February, with decreases in airfares and gasoline partially offsetting shelter increases. Despite the easing, the report does not capture upcoming tariff impacts. The inflationary pressure from tariffs and trade war would weigh on the economy and complicate the Fed’s path to its 2% target. Meanwhile, while housing drove nearly half of February’s inflation increase and remains higher than the 2019 pre-pandemic average of 3.4%, it continues to show signs of cooling – the year-over-year change in the shelter index remained below 5% for a sixth straight month and posted its lowest annual gain since December 2021. 

While the Fed’s interest rate cuts could help ease some pressure on the housing market, its ability to address rising housing costs is limited, as these increases are driven by a lack of affordable supply and increasing development costs. In fact, tight monetary policy hurts housing supply because it increases the cost of AD&C financing. This can be seen on the graph below, as shelter costs continue to rise at an elevated pace despite Fed policy tightening. Additional housing supply is the primary solution to tame housing inflation and with it, overall inflation. This emphasizes why the cost of construction, including the cost of building materials, matters not just for housing but also the inflation outlook and the path of future monetary policy.

Consequently, the election result has put inflation back in the spotlight and added additional upside and downside risks to the economic outlook. Proposed tax cuts and tariffs could increase inflationary pressures, suggesting a more gradual easing cycle with a slightly higher terminal federal funds rate. However, economic growth could also be higher with lower regulatory burdens. Given the housing market’s sensitivity to interest rates, a higher inflation path could extend the affordability crisis and constrain housing supply as builders continue to grapple with lingering supply chain challenges.

During the past twelve months, on a non-seasonally adjusted basis, the Consumer Price Index rose by 2.8% in February, according to the Bureau of Labor Statistics’ report. This followed a 3.0% year-over-year increase in January. Excluding the volatile food and energy components, the “core” CPI increased by 3.1% over the past twelve months, marking the first notable decline after hovering between 3.2% and 3.3% since June 2024. A large portion of the “core” CPI is the housing shelter index, which increased 4.2% over the year, the smallest year-over-year increase since December 2021.  Meanwhile, the component index of food rose by 2.6%, and the energy component index fell by 0.2%.

On a monthly basis, the CPI rose by 0.2% in February (seasonally-adjusted), after a 0.5% increase in January. The “core” CPI increased by 0.2% in February.

The price index for a broad set of energy sources rose by 0.2% in February, with declines in gasoline (-1.0%) offset by increases in electricity (+1.0%), natural gas (+2.5%) and fuel oil (+0.8%). Meanwhile, the food index rose 0.2%, after a 0.4% increase in January. The index for food away from home increased by 0.4% and the index for food at home remained unchanged.

The index for shelter (+0.3%) was the largest contributor to the monthly increase in all items index, accounting for nearly half of the total increase. Other top contributors that rose in February include indexes for medical care (+0.3%), used cars and trucks (+0.9%), household furnishings and operations (+0.4%), as well as recreation (+0.3%). Meanwhile, the index for airline fares (-4.0%) and new vehicles (-0.1%) were among the few major indexes that decreased over the month.

The index for shelter makes up more than 40% of the “core” CPI, rose by 0.3% in February, following an increase of 0.4% in January. Both indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) increased by 0.3% over the month. Despite the moderation, shelter costs remained the largest contributors to headline inflation. 

NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than core inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster than core inflation, the real rent index rises and vice versa. The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).

In January, the Real Rent Index rose by 0.1%. Over the first two months of 2025, the monthly growth rate of the Real Rent Index averaged remained flat at 0.0%, unchanged from the same period in 2024.

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1. Surfaces That Stand the Test of Time

The theme of this year’s show was Creative Conscience, with the organizers spotlighting materials that fuse functionality, aesthetics and sustainability.

“The theme focuses on the future of materials for the built environment, driven by developments in technology, a heightened focus on sustainability and a deeper understanding of human needs,” said the show’s director, Nickie West.

A number of the brands at the show had this ethos in mind, displaying surfaces that were created sustainably and use technology to ensure they’re durable to avoid waste.

Transformad’s Tmatt super-matte surface collection (pictured) has an anti-fingerprint finish, is scratch-resistant and has self-regenerative properties. It’s also made without the use of solvents to raise its environmentally friendly credentials.

Similarly, Koukos de Lab highlighted its Koukoutsi surfaces, which are made from repurposed eco-waste. The materials are available in various thicknesses and finishes, and are easy to maintain and repair. They can also be refurbished or transformed into new products when they’re no longer needed.

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This article was originally published by a www.houzz.com . Read the Original article here. .


In a widely anticipated move, the Federal Reserve’s Federal Open Market Committee (FOMC) reduced the short-term federal funds rate by an additional 25 basis points at the conclusion of its December meeting. This policy move reduces the top target rate to 4.5%. However, the Fed’s newly published forward-looking projections also noted a reduction in the number of federal funds rate cuts expected in 2025, from four in its last projection to just two 25 basis point reductions as detailed today.

The new Fed projection envisions the federal funds top target rate falling to 4% by the end of 2025, with two more rate cuts in 2026, placing the federal funds top target rate to 3.5% at the end of 2026. One final rate is seen occurring in 2027. Furthermore, the Fed also increased its estimate of the neutral, long-run rate (sometimes referred to as the terminal rate) from 2.9% to 3%, which is reflective of stronger expectations for economic growth and productivity gains.

For home builders and other residential construction market stakeholders, the new projections suggest an improved economic growth environment, one in which there is a smaller amount of monetary policy easing, leading to higher than previously expected interest rates for acquisition, development and construction (AD&C) loans. Thus, more economic growth but higher interest rates.

The statement from the December FOMC summarized current market conditions as:

Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.

The Fed’s broader economic projections generally experienced positive revisions. The central bank lifted its forecast for GDP growth in 2025 to 2.1%. It sees the unemployment rate at 4.3% at the end of 2025, down from 4.4%.

However, the Fed also increased its inflation expectations. The central bank now sees 2.5% core PCE inflation at the end of 2025, up from its prior projection of 2.1%. While long-run expectations of the FOMC remained anchored at the 2% inflation target, the increase for the 2025 expectation for inflation is the reason for taking two rate cuts off the table for 2025, leaving just two remaining in the forecast.

Despite 100 basis points of easing for the short-term federal funds rate since September, long-term interest rates (which are set by markets and investors), including mortgage rates, have increased. This reflects market expectations of firmer inflation and a slower path for monetary policy easing. Policy concerns over government deficits and perhaps tariffs are also affecting investor outlooks. The size of the government deficit will be key for future inflation and long-term interest rates, particularly given a significant debate on taxes and government spending set for the start of 2025. And the slower path of monetary policy easing pushed the 10-year Treasury rate to 4.5%.

The pace of overall inflation is moving lower albeit slowly. Shelter inflation continues to be a driver of overall inflation, with gains for housing costs responsible for 65% of overall inflation over the last year. This kind of inflation can only be tamed in the long-run by increases in housing supply. Fed Chair Powell has previously noted it will take some time for rent cost growth to slow although it is moving lower. Given recent tight financing conditions, however, the Fed noted that while consumer spending is resilient, “…activity in the housing sector has been weak.” A slower path of Fed rate cuts for 2025 will keep builder and developer construction loan interest rates higher than previously expected and act as an additional headwind for gains in housing supply.

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