New-home sales surged higher in December 2024, reaching an annualized rate of 703,000 units sold, outperforming forecasts. Despite persistent affordability challenges, sales remain well above pre-pandemic levels, supported by buyers turning to new homes amidst a dwindling inventory of existing properties. Over the past six months, sales have averaged nearly 695,000 units annually, compared to 600,000 units in the five years before the pandemic.
Economic Trends in Focus
Economists anticipate moderate rate cuts this year, with expectations of two 25-basis-point reductions. Lower rates could ease builders’ borrowing costs for land and development, potentially reducing construction expenses and allowing for competitive pricing and buyer incentives. However, risks loom, including potential tariffs and stricter immigration policies, which could increase material and labor costs.
Mortgage rates are expected to decline modestly in the coming quarters, which may slightly ease affordability pressures. Still, significant affordability challenges persist, with mortgage rates needing to drop by nearly 460 basis points to restore the 2019 affordability landscape.
Key Economic Events This Week
The Federal Open Market Committee (FOMC) meets Wednesday, with expectations that policymakers will hold rates steady amid sturdy inflation and ongoing trade uncertainties. Thursday will bring the Bureau of Economic Analysis’ Q4 GDP growth estimate, projected at 2.9% annualized. December’s personal income, spending data, and the Fed’s preferred inflation gauge—the PCE deflator—will follow on Friday, providing further insights into consumer trends and price stability.
U.S.-Colombia Diplomatic Challenges
A diplomatic crisis unfolded over the weekend as the Colombian government initially refused U.S. planes carrying deported immigrants, prompting threats of tariffs and visa restrictions. The conflict, resolved late Sunday, highlights the fragile balance in U.S.-Colombian trade relations. In 2024, the U.S. accounted for 30% of Colombian exports, with key goods like oil, coffee, and flowers at risk of tariff-driven price increases. For Colombia, the economic stakes are high, as sudden trade disruptions could significantly impact revenues and investments.
Market Performance and Volatility
U.S. markets saw turbulence on Monday, as the NASDAQ dropped over 3%, spurred by competitive pressures from a Chinese AI startup. The S&P 500 followed with a 1.46% decline, while the Dow Jones gained 0.65%, continuing its recovery. European and Asian markets showed mixed results, with Germany’s DAX down 0.53% and Hong Kong’s Hang Seng up 0.66%.
Safe-haven assets gained traction amid stock market volatility. The 10-year Treasury yield fell to 4.53%, its lowest since mid-December, while the price of West Texas Intermediate (WTI) crude oil declined over 2%, settling near $73 per barrel, following U.S. pressure on OPEC to lower prices.
Outlook
With mixed signals from housing, trade, and financial markets, economic resilience will be tested in 2025. Policymakers and market participants alike will watch closely for trends in affordability, trade dynamics, and global monetary adjustments. Stay tuned for further updates.
Written by Sigmanomics
