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Glimmers of Hope? Residential Construction Spending Advances for the Fourth Month in a Row

0 1566 Market Intelligence

A sluggish economy, a soft jobs market, a large inventory of foreclosed homes, the threat of additional foreclosures, and difficulty in obtaining financing for both potential homebuyers and for builders continue to act as a drag on the housing market. In spite of these factors, some glimmers of hope have appeared recently.

A sluggish economy, a soft jobs market, a large inventory of foreclosed homes, the threat of additional foreclosures, and difficulty in obtaining financing for both potential homebuyers and for builders continue to act as a drag on the housing market. In spite of these factors, some glimmers of hope have appeared recently. Although total housing starts fell 0.3% in October after rising 7.7% in September, the decline was due to the ever volatile multifamily starts, which masked developments for single-family starts. October single-family starts rose to 430,000 units at a seasonally-adjusted annual rate from September’s 414,000 starts. This left the three-month moving average at 423,000, roughly a level it has been at for about a year.

However, building permits suggest that the 430,000 starts may be more than a bounce back from the September number as single-family permits jumped 5.1% in October to 434,000. Further, single-family permits have been trending up for the past eight months. Meanwhile, the National Association of Home Builders (NAHB) November Housing Market Index (HMI) rose from 17 to 20 — the second month in a row that the index increased three points and the highest it has been since a reading of 22 in May of last year as well as the second highest reading in three and half years.

The outlook is for slow, but steady improvement in residential construction. Low long-term interest rates, some loosening of overly tight lending standards, and an improving jobs market will provide positive pressure to the housing market. Lean builder inventories mean that any increase in single-family housing demand will translate quickly into additional construction activity. Meanwhile, the outlook for multifamily housing projects remains bright in the near term.

New residential construction spending has been inching upward for the past four months. In September it rose 0.2% to $129.4 billion, its highest level since January, after increasing 1.4% in August. The forecast is for residential construction spending to fall 5.6% in 2011 and then rise 2.9% in 2012 and 7.3% in 2013.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month
Moving Average
Actual Forecast
  Aug-11 Sep-11 Oct-11 Aug-11 Sep-11 Oct-11 2008 2009 2010 2011 2012 2013
Northeast Starts 57 58 68 70 67 61 121 62 72 67 71 83
  Month-over-Month % Change -32.9% 1.8% 17.2% 0.5% -4.8% -8.5%            
  (Year-over-year % change of NSA data) -24.6% -14.8% -14.7%       -15.3% -48.9% 15.9% -7.1% 7.1% 15.8%
Midwest Starts 86 93 102 101 90 94 135 97 98 95 99 111
  -4.4% 8.1% 9.7% -4.1% -10.9% 4.5%            
  -21.8% 2.3% 8.0%       -35.8% -28.0% 0.8% -3.5% 4.8% 11.6%
South Starts 301 321 326 298 309 316 453 278 298 306 332 366
  -1.6% 6.6% 1.6% 4.3% 3.7% 2.2%            
  7.5% 9.8% 26.9%       -33.4% -38.6% 6.9% 2.7% 8.5% 10.3%
West Starts 141 158 132 136 144 144 196 117 120 130 144 185
  5.2% 12.1% -16.5% 1.7% 6.1% -0.5%            
  2.3% 23.1% 40.3%       -38.9% -40.5% 2.7% 8.1% 10.9% 28.5%
Total Starts (2) 585 630 628 605 610 614 906 554 587 596 646 743
  -4.9% 7.7% -0.3% 1.8% 0.8% 0.7%            
  -3.2% 8.7% 18.9%       -33.2% -38.8% 5.9% 1.6% 8.3% 15.1%
Total Single-family Starts 425 414 430 435 423 423 622 445 471 422 434 476
  -1.2% -2.6% 3.9% 0.7% -2.7% 0.0%            
  0.8% -6.1% -0.3%       -40.5% -28.4% 5.9% -10.4% 2.9% 9.6%
Total Multifamily Starts 160 216 198 170 187 191 284 109 116 174 211 268
  -13.5% 35.0% -8.3% 4.7% 9.8% 2.3%            
  -12.2% 50.7% 92.6%       -8.3% -61.6% 6.2% 50.4% 21.4% 26.6%
New Home Sales (3) 293 303 307 297 297 301 485 375 323 303 321 353
  -0.7% 3.4% 1.3% -1.7% 0.0% 1.3%            
  8.7% 0.0% 8.7%       -37.5% -22.7% -13.9% -6.1% 6.0% 9.7%
Manufactured Home Shipments 54 55 NA 50 51 NA 82 50 50 49 58 69
  21.7% 1.9%   3.6% 1.1%              
  5.9% 14.2%         -14.5% -39.3% 0.7% -1.5% 17.6% 18.5%
     Residential Construction Spending (Billions Current $)      
New Residential 129.2 129.4 NA 129.2 129.4 NA 237.0 141.2 136.2 128.6 132.4 142.1
  1.4% 0.2%   0.7% 0.7%              
  -2.3% -7.8%         -33.1% -40.4% -3.5% -5.6% 2.9% 7.3%
Residential Improvements* 105.5 106.9 NA 105 107 NA 120.7 112.7 112.5 112.8 110.3 115.2
  0.1% 1.3%   -7.0% -5.5%              
  -4.3% -1.6%         -13.5% -6.6% -0.2% 0.3% -2.2% 4.5%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Total starts may not equal sum of regions due to rounding.
(3) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
*Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

by Bernie Markstein

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