The Small Balance Intersection Update - November 27, 2024

On This Date:

In 1792, The New York Stock Exchange (NYSE), which traces its roots to the Buttonwood Agreement of 1792, recorded one of its earliest formal transactions.

In 1901, U.S. Steel Corporation became the world's first billion-dollar company. It was officially formed earlier in the year but hit this valuation milestone on this day.

In 1924, The first Macy's Thanksgiving Day Parade was held in New York City featuring live animals borrowed from the Central Park Zoo.

Caution Ahead: Multifamily Starts Hit Lowest Levels Since 2013

Multifamily Market Trends: October 2024 Overview

In October 2024, multifamily starts for buildings with five or more units declined 12.6% year-over-year to a seasonally adjusted annual rate of 326,000, though they rose 9.8% compared to September. Completions surged to 615,000 units, marking a 61.4% year-over-year increase, but dropped 9% from the previous month. Units under construction totaled 804,000, reflecting a 19.2% year-over-year decrease and a 3.5% monthly decline. Meanwhile, developers pulled permits for 393,000 multifamily units, down 20.9% from the same time last year and 3% from September. The gap between multifamily starts and completions is now at its largest since 1974, underscoring a slowdown in initiating new projects.

Despite these challenges, overall housing starts remained relatively stable, declining 4% year-over-year to a seasonally adjusted annual rate of 1.3 million. Single-family starts saw a modest 0.5% year-over-year decrease to 970,000 units. Some optimism persists in the multifamily sector, particularly among REITs. AvalonBay Communities began four projects in Q3—two in North Carolina and two in Texas—and plans to ramp up activity in 2025 with a projected $1.5 billion in new developments. These REITs also highlight a cost-of-capital advantage over private developers, enabling them to sustain construction efforts despite broader market headwinds. The data reflects a cooling multifamily market, with declining starts and permits, while completions remain robust.

Multifamily Market Trends: October 2024 Overview

Confidence Boulevard

Consumer Confidence Rises Again in November

In November 2024, the Conference Board Consumer Confidence Index? climbed to 111.7, up from 109.6 in October, reflecting continued labor market optimism. The Present Situation Index rose to 140.9, driven by improved perceptions of current business and labor conditions. The Expectations Index also ticked up to 92.3, remaining well above the threshold signaling a potential recession. Younger consumers under 35 led the confidence gains, while confidence among middle-aged groups declined slightly.

Consumers grew more optimistic about job availability, with future job availability expectations reaching their highest level in nearly three years. However, expectations for income growth decreased marginally, and fewer consumers anticipated a recession in the next 12 months. Inflation expectations also declined to 4.9%, the lowest since March 2020, although elevated prices remain a top concern for 2025.

While purchasing plans for homes stalled, auto purchase plans increased slightly. Spending priorities remained focused on travel and healthcare, with reduced plans for appliances and electronics. Consumers expressed record-high optimism about the stock market, with 56.4% expecting stock prices to rise in the coming year.

For more details, read the full report: Consumer Confidence Report - November 2024.

Affordability Street

Cooling Housing Market: September Home Price Trends

In September 2024, U.S. home prices continued to decelerate, rising 3.9% year-over-year, down from a peak of 6.5% earlier in the year, according to the CoreLogic S&P Case-Shiller Index. This marks the sixth consecutive month of slowing appreciation. Nationally, home prices declined by 0.1% month-over-month, contrasting with the typical seasonal gains of prior years. Western metros and larger cities, including Los Angeles and San Francisco, saw the steepest declines, while affordable markets in the Midwest and Desert West posted modest gains.

Inflation and persistently high mortgage rates—resulting in an 82% increase in typical mortgage payments compared to pre-pandemic levels—have significantly constrained housing affordability. Despite these challenges, areas like Cleveland and Phoenix recorded notable monthly price increases, while California metros experienced declines across all price tiers. High-tier properties across metros fell by 0.4% on average, highlighting the uneven impact of market dynamics.

Looking ahead, the CoreLogic Home Price Index forecasts annual price growth to slow further to 2.3% by next August. Increased inventory and elevated non-fixed ownership costs, such as taxes and insurance, may moderate price gains in 2025. As market conditions bifurcate geographically, affordability challenges and divergent trends are expected to shape the spring homebuying season.

For more details, read the full report: CoreLogic Home Price Insights – November 2024.

Fed Rate Cut Sparks Surge in Equipment Demand

Heavy Equipment Zone

Following the Federal Reserve’s September rate cuts, equipment leases and loans surged by $10.5 billion (5.1%) in October 2024, marking the largest monthly increase since August 2023, according to the Equipment Leasing and Finance Association's (ELFA) CapEx Finance Index. This strong performance indicates robust equipment investment and positions the sector for a solid fourth-quarter finish.

Despite inflationary pressures and elevated borrowing costs, demand for business equipment remained resilient, with inflation-adjusted new business volume averaging $8 billion monthly. Employment growth in the sector slowed to 0.7% annually but stayed positive, reflecting steady recovery from pandemic-related unemployment spikes. Credit approvals remained stable at 75.1%, while lender balance sheets improved, with charge-offs dropping to their lowest level since January 2023.

The ELFA Monthly Confidence Index rose to 67.5 in November, the highest since August 2021, signaling strong sector optimism. Analysts anticipate further growth as businesses leverage potential tax benefits and invest in technology, production equipment, and resources to meet reshoring demands.

For more insights, visit: Fed Rate Cut Sparks Surge in Equipment Demand.