Tuesday's Scoop: Float☀️

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Here’s what you need to know today to inform your work, spending, and investments…

1. A ton of new homes hit the market in February.

2. Homebuilders are ramping up construction.

3. Chocolate prices are likely to climb further due to poor cocoa bean harvests.

Inflation Rate: +3.2% (YoY), +0.4% (MoM)
^{Policymakers aim for 2% YoY inflation.}

Chocolate prices have been climbing, and they may get even worse. Cocoa prices have more than doubled over the last year to record highs due to bean disease and poor agricultural conditions. Ivory Coast and Ghana, producers of nearly 60% of the world’s cocoa, are heading for their fourth straight year of underproduction. An exclusive report from Reuters highlighted multiple processing plants that have already stopped making cocoa products because they can’t afford the beans. This disruption has already translated to 12% higher chocolate prices in US stores over the past year, and prices could keep climbing. The International Cocoa Organisation expects an 11% decline in global cocoa production this season.

30yr Mortgage Rate: 6.8%
^{That’s up from 6.7% a year ago. (MBA)}
Median Home Price: $379,100
^{That’s up from $361K a year ago. (NAR)}

Some relief may be coming for the nationwide housing shortage. The Commerce Department reported a surprising surge in new home construction last month. The number of completed homes soared 20% to the highest volume since January 2007. The trend looks set to continue. Construction starts for new single-family homes jumped 12% in February to the highest level in nearly two years, and permits for future construction rose as well. Newly-built homes are a fraction of the overall market supply but have been the focus of homebuying demand amidst supply shortages. Expensive mortgage rates have discouraged homeowners from selling and giving up the low rates they locked in a few years ago. Supply is only about two-thirds of what it was in 2019.

Homebuilders expect the pickup in home construction to continue. The National Association of Home Builders’s confidence index rose in March to the highest level since July. Mortgage rates have inched down from their peaks, and demand from home buyers has strengthened enough that builders don’t have to make as many price concessions. However, even though discounts have faded, more than 60% of builders still report providing some incentive.

The Market: ⬆️ +0.6%
S&P 500: 5,178.51
1Mo: +4% | 1Yr: +31% | 5Yr: +85%

The market drifted higher on Tuesday without any significant shift in the narrative. Investors are still waiting for an update on economic policy from the Federal Reserve tomorrow, but no one expects any major changes.