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Continued Recovery in Housing Sends New Residential Construction Spending Higher in December

0 2872 Market Intelligence

New residential construction spending rose 1.4% on a seasonally adjusted (SA) basis in December after rising 1.6% in November. This was its ninth consecutive monthly increase and its 14th increase over the past 15 months.

New residential construction spending rose 1.4% on a seasonally adjusted (SA) basis in December after rising 1.6% in November. This was its ninth consecutive monthly increase and its 14th increase over the past 15 months. For 2012, spending was up 19.6% over 2011. Increases in single-family construction spending slowed the last two months, up 0.8% in December, down from November’s 1.5% increase, which was down from October’s strong 3.8% increase. Multifamily construction spending shot up 4.5% in December after advancing a healthy 2.2% in November. For the year, single-family construction spending increased 19.4% and multifamily spending increased 20.3% over 2011.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Oct-12 Nov-12 Dec-12 Oct-12 Nov-12 Dec-12 Jan-11 to
Dec-11
Jan-12 to
Dec-12
New Single-family 141.5 143.7 144.8 136.5 140.5 143.4 108.2 129.2
  Month-over-Month % Change 3.8% 1.5% 0.8% 3.5% 3.0% 2.0%    
  (Year-over-year % change of NSA data) 29.7% 30.6% 29.0%       -3.9% 19.4%
New Multifamily (2) 29.6 30.2 31.6 28.7 29.4 30.5 22.6 27.2
  4.0% 2.2% 4.5% 2.2% 2.5% 3.6%    
  29.7% 30.4% 34.3%       -6.1% 20.3%
New Residential (3) 171.1 173.9 176.4 165.2 170.0 173.8 130.8 156.4
  3.8% 1.6% 1.4%          
  29.7% 30.5% 29.9%       -4.3% 19.6%
Residential Improvements (4) 135.1 134.3 138.2 132.1 133.8 135.8 114.9 127.0
  2.2% -0.6% 2.9% 2.4% 1.3% 1.5%    
  16.9% 12.3% 17.4%       2.2% 10.5%
Total Residential (5) 306.2 308.2 314.6 297.3 303.8 309.7 245.7 283.4
  3.1% 0.7% 2.1% 2.9% 2.2% 1.9%    
  23.3% 22.2% 24.2%       -1.4% 15.4%

(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
(3) New Residential = New Single-family + New Multifamily
(4) Residential Improvements include remodeling, renovation and replacement work. Number also includes RCD estimate of improvements to public housing.
(5) Total Residential = New Single-family + New Multifamily + Residential Improvements. Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Single-Family Housing
Single-family housing starts inched up 0.8% to 613,000 at a seasonally adjusted annual rate (SAAR), a slowdown from December’s 6.7% jump but their highest level since July 2008. For 2012, there were 535,000 single-family starts, up 24.2% from 2011. Single-family housing is clearly in a recovery mode, but from a very low level. Single-family starts for 2012 were less than half of the average annual long-term needs for the nation. Thus there is significant room for single-family construction to expand further without creating a new bubble. This will have a positive effect on construction employment and economic activity in general over the next few years.

Single-family building permits increased 1.9% to 584,000, their highest level since June 2008, from 573,000 in December. Meanwhile, the February NAHB/Wells Fargo Housing Market Index (HMI) slipped a point, falling to 46. This may just be an indication that homebuilders and homebuyers are catching their breath rather than a significant downturn in their optimism.

Multifamily Housing
Multifamily starts fell sharply in January, down 24.1% to 277,000 (SAAR), after shooting up 34.7% in December. Since large swings in the monthly multifamily starts number is typical, the three-month moving average is used to smooth out some of the monthly variability to gain a better understanding of the health of multifamily construction. The three-month moving average for January fell 2.5% from December to 304,000, the second highest level since August 2008. On the positive side, the three-month moving average for multifamily building permits was up 4.0% to 336,000, its highest level since August 2008.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Nov-12 Dec-12 Jan-13 Nov-12 Dec-12 Jan-13 Jan-11 to
Dec-11
Jan-12 to
Dec-12
     Northeast Starts 68 116 75 74 87 86 68 80
       Month-over-Month
       % Change
-12.8% 70.6% -35.3% -2.6% 17.5% -1.1%    
       Year-over-year
       % Change of NSA data
-32.9% 90.5% 2.2%       -5.0% 17.7%
     Midwest Starts 154 190 95 152 167 146 101 128
  -1.3% 23.4% -50.0% 5.5% 9.4% -12.2%    
  68.1% 15.5% -20.8%       3.2% 27.0%
     South Starts 451 464 483 436 451 466 308 398
  3.0% 2.9% 4.1% 6.1% 3.5% 3.3%    
  28.4% 45.5% 19.7%       3.5% 29.2%
     West Starts 168 203 237 195 196 203 133 174
  -22.6% 20.8% 16.7% -0.3% 0.3% 3.4%    
  -5.6% 63.3% 73.3%       10.4% 31.6%
Total Starts (2) 841 973 890 858 901 901 609 780
  -5.4% 15.7% -8.5% 3.7% 5.1% 0.0%    
  17.4% 46.4% 23.9%       3.7% 28.1%
     Single-family Starts 570 608 613 583 589 597 431 535
  -3.2% 6.7% 0.8% 1.9% 1.0% 1.4%    
  22.6% 21.0% 19.6%       -8.6% 24.2%
     Multifamily 271 365 277 275 312 304 178 245
  -9.7% 34.7% -24.1% 7.7% 13.6% -2.5%    
  8.9% 113.7% 34.0%       54.0% 37.7%
New Home Sales (3) 398 369 NA 380 377 NA 306 367
  9.3% -7.3%   2.8% -0.9%      
  26.1% 8.3%         -5.0% 19.9%
Manufactured Home
Shipments
56 53 NA 53 55 NA 52 55
  1.2% -5.2%   -1.0% 3.8%      
  -18.1% -8.4%         3.1% 6.3%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) Total may not equal the sum of its components due to rounding.
(3) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Outlook for Residential Construction
The housing market continues to show improvement. Housing prices are flat to rising in much of the country. The November 10-city and 20-city S&P/Case-Shiller® Home Price Index increased 4.5% and 5.5%, respectively, from November 2011. Rising prices help the mortgage market by keeping more loans from falling underwater and possibly into default, and lifting some loans, albeit a small number, above water. This reduces the number of foreclosures, which have been falling. Potential homebuyers feel more comfortable in their decisions. It also allows lenders to be more confident in issuing mortgages and in extending credit to homebuilders. Although interest rates on mortgages have risen a bit of late, they remain near historic lows. The Federal Reserve has indicated it plans to keep long-term interest rates low through the end of this year and very likely through the end of next year. Thus the prospects of continued improvement in both single-family and multifamily construction are excellent.

New residential construction spending is forecasted to increase 22.1% this year and to increase 15.4% in 2014.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 80 91 109
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.7% 14.5% 19.5%
     Midwest Starts 97 98 101 128 153 168
  -28.0% 0.8% 3.1% 27.0% 19.4% 10.0%
     South Starts 278 298 308 398 503 558
  -38.6% 6.9% 3.5% 29.2% 26.4% 11.1%
     West Starts 117 120 133 174 268 333
  -40.5% 2.7% 10.5% 31.6% 53.5% 24.4%
Total Starts (1) 554 587 609 780 1,015 1,169
  -38.8% 5.9% 3.7% 28.1% 30.1% 15.2%
     Single-family Starts 445 471 431 535 689 796
  -28.4% 5.9% -8.6% 24.2% 28.9% 15.5%
     Multifamily Starts 109 116 178 245 325 373
  -61.6% 6.2% 54.0% 37.7% 32.6% 14.6%
New Home Sales (2) (7) 375 323 306 367 422 515
  -22.7% -13.9% -5.3% 19.9% 15.0% 21.9%
Manufactured Home Shipments (7) 50 50 52 55 62 70
  -39.2% 0.5% 3.1% 6.3% 12.5% 13.4%
     Residential Construction Spending (Billions of Current Dollars) (7)  
New Single-family 105.3 112.6 108.2 129.2 156.5 181.1
  -43.3% 6.9% -3.9% 19.4% 21.2% 15.7%
New Multifamily (3) 35.9 24.1 22.6 27.2 34.4 39.3
  -30.0% -32.9% -6.0% 20.3% 26.5% 14.1%
New Residential (4) 141.2 136.7 130.8 156.4 191.0 220.3
  -40.4% -3.2% -4.3% 19.6% 22.1% 15.4%
Residential Improvements (5) 112.7 112.5 114.9 127.0 143.7 155.2
  -6.6% -0.2% 2.2% 10.5% 13.2% 8.0%
Total Residential (6) 253.9 249.1 245.7 283.4 334.7 375.5
  -29.0% -1.9% -1.4% 15.4% 18.1% 12.2%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Total starts may not equal sum of regions due to rounding.
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
(3) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
(4) New Residential = New Single-family + New Multifamily
(5) Residential Improvements include remodeling, renovation and replacement work. Number also includes RCD estimate of improvements to public housing.
(6) Total Residential = New Single-family + New Multifamily + Residential Improvements. Total Residential may not equal the sum of its components due to rounding.
(7) New Home Sales, Manufactured Home Shipments, and Residential construction spending numbers for 2012 are estimates based on 11 months of data.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

by Bernie Markstein

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