Monthly Report: February 2025

United States

On the macro front, inflation and core inflation in February exceeded expectations (0.4% compared to 0.3% expected and 0.5% compared to 0.3% expected, respectively). Additionally, retail sales declined by 0.9% month-over-month. On a positive note, unemployment was lower than anticipated (4% versus 4.1% expected), and US Manufacturing PMIs showed slight growth at 50.9.

The high uncertainty due to tariffs and persistently high mortgage rates, mirroring the base interest rates from the FED, has been holding back the housing market. Most housing-related data this month has fallen below expectations. The 30-year mortgage rate currently sits at 6.85%, just shy of the 7% peak in January, while the 15-year mortgage rate is above 6%. The increase in inflationary expectations and the decrease in anticipated rate cuts from the FED this year have elevated borrowing costs, making it challenging to add leverage to the housing system.

In January, existing home sales dropped by almost 5%, the biggest drop in the last 7 months. The median price for existing homes dropped to $396k, down 2% from the previous month. At the same time, inventory grew to 3.9 months of supply, compared to the 3.7 months recorded in December.

The NAHB/Wells Fargo Housing Index dropped to 42, a 5-month low. The index measures sales conditions currently and 6 months ahead, with the latter dragging down the index.  

Housing starts dropped 9.8% MoM to an annualized 1.366 million in January, down from a 10-month high last month and below the expected 1.4 million. Although this is a decent miss, the weather conditions (cold and storms) probably impacted housing starts more than the high mortgage rates and tariff concerns.

According to the WSJ’s graph below, properties in the US are being delisted, which could signal a weakening of demand. We haven’t seen this many delistings since 2015.

United Kingdom

There was mixed macro sentiment from the UK again, with the BoE cutting rates to 4.5% in early February, followed by inflation printing higher than expected (3% vs. 2.7% YoY). As a reminder, a softer inflation print led to the rate cut. Conversely, GDP was stronger than expected (1.5% vs. 1.1% expected YoY), and retail sales massively outperformed their forecast (1.7% vs. 0.2% expected YoY). Unemployment was stable and on par with expectations, while service sentiment was slightly better and manufacturing was slightly worse. 

The Halifax house index improved further, showing a 3% year-over-year gain over the expected 2.7%. Month over month, the index was 0.7% higher, compared to the expectation that it would remain unchanged. 

The RICS survey showed the market was still experiencing strong price appreciation, with a +22 % increase in January. However, this was lower than the +26% increase in December and the +27% forecast. Although house price growth might slow down, we are still in a strong market according to most metrics. It remains to be seen whether this recent activity will diminish as soon as the new stamp duties come into play in April.

China

China manufacturing PMIs remain around 50, with the Caixin at 50.1 and NBS at 49.1 for January. The Caixin index showed growth for the 4th consecutive month in factory activity but slowest in this sequence. The Chinese Lunar New Year creates some discrepancy in the data, so we need to wait and see how factory activity will favor the next prints, especially under the new reality of tariffs. On the more positive side, inflation has been picking up (0.5% vs. 0.2% expected YoY). 

China’s new home prices in 70 city property markets dropped by 5.0% YoY in January. This is a slight improvement from the 5.3% decrease in December and constitutes a smaller drop since the summer. MoM home prices were stable. We still haven’t seen solid results from China’s stimulus, which included lower rates, lower housing costs, and financing via bonds for local governments. Overall, new home prices have dropped for 19 months straight. 

Chinese authorities are rumored to be attempting to help developer China Vanke Co. cover a funding gap of about 50 billion yuan (around $6.7 billion). The plan includes purchasing unsold properties and land from the developer. China seems unwilling to tolerate another Evergrande situation.  

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References

(n.d.). US Treasuries Yield Curve. US Treasuries Yield Curve. https://www.ustreasuryyieldcurve.com/

(n.d.). CME FedWatch Tool. CME Group. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

(n.d.).Trading Economics. Trading Economics. https://tradingeconomics.com/united-states/nahb-housing-market-index

(n.d.).Goldman Sachs. Goldman Sachs. https://www.goldmansachs.com/

(n.d.).Bloomberg. Bloomberg. https://www.bloomberg.com

(n.d.). FRED. Federal Reserve Economic Data. https://fred.stlouisfed.org/

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