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Residential Construction Spending Declined 0.4% in June

0 246 Market Intelligence

The 0.4% June decline in residential construction spending was smaller than expected post homebuyer tax credit. The monthly growth rate got a boost from a substantial downward revision of May residential spending and an off-trend 4.3% rise in multi-family residential construction. The recession is not yet over for the multi-family market. Single family construction spending fell 0.7% in June. While new home sales down sharply now, this suggests that homebuilders expect the post tax credit lull to be brief and mild, says Reed Construction Data chief economist Jim Haughey.

The 0.4% June decline in residential construction spending was smaller than expected post homebuyer tax credit. The monthly growth rate got a boost from a substantial downward revision of May residential spending and an off-trend 4.3% rise in multi-family residential construction. The recession is not yet over for the multi-family market. Single family construction spending fell 0.7% in June. While new home sales down sharply now, this suggests that homebuilders expect the post tax credit lull to be brief and mild.

Remodeling spending fell 0.9% in June, following several months of reduced sales of existing homes. DIY remodeling has the same modestly weak trend reflected in building material retail sales. Little change in remodeling construction spending is expected for the rest of 2010 with a 5-6% annual expansion pace beginning next year when consumer income, consumer confidence and existing home sales are all higher.

Lingering credit problems for both homebuyers and homebuilders continue to restrain the new home market. Tens of millions of households are now locked out of the mortgage market by job and income losses, underwater mortgage and foreclosures. Others are reluctant to purchase for fear prices will drop further. At the same time, some homebuilders are unable to get land and development loans to build inventory for an expected sales increase. For some builders, their lenders are financially stressed and trying to reduce real estate loans. For other builders, their own credit history or reduced equity is the problem.

That said, the housing market is still below the currently reduced potential which is far short of the approximately 1.8 million new homes per year, the demographic equilibrium without any credit or income problems. There is room for housing starts to expand rapidly, as much as 2%/month through 2011 without reaching the currently reduced potential limit.

U.S. Residential Building Construction
(thousands of units)

  Monthly Figures (1)
(latest actual values)
Annual Figures
  Actual Forecast
  May-10 Jun-10 2006 2007 2008 2009 2010 2011
Northeast starts (% change is period
versus same period, previous year)
71 63 171 143 120 61 81 110
18.3% -20.3% -9.6% -16.6% -16.3% -48.7% 32.1% 35.8%
Midwest 101 94 285 206 137 95 111 147
  27.8% -10.5% -20.2% -27.6% -33.7% -30.7% 17.4% 31.5%
South 288 281 912 676 451 281 326 398
  4.7% 2.6% -8.9% -25.9% -33.3% -37.7% 15.9% 22.3%
West 118 111 444 317 195 117 132.667 177
  -13.2% -11.2% -19.4% -28.5% -38.5% -40.1% 13.5% 33.0%
Total 578 549 1,811 1,342 909 554 651 831.25
  5.1% -5.8% -12.6% -25.9% -32.3% -39.0% 17.4% 27.7%
Total Single-family 457 454 1,474 1,036 616 442 536 673
  12.6% -4.6% -14.3% -29.7% -40.5% -28.2% 21.3% 25.4%
Total Multi-family 121 95 338 306 292 112 114 159
  -16.0% -11.2% -4.7% -9.4% -4.5% -61.7% 2.1% 38.8%
New Home Sales (2) 270 330 1,049 769 481 374 364 491
  -26.4% -16.7% -18.0% -26.7% -37.4% -22.3% -2.6% 34.9%
Manufactured Home Shipments 55 56 118 96 82 50 54 63
  10.0% 14.3% -20.0% -19.2% -14.3% -39.0% 8.5% 15.2%

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
Manufactured home data is for September and October.
Forecasts and table: Reed Construction Data.

by Jim Haughey

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