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New Residential Construction Spending Falls in June

0 2202 Market Intelligence

June new residential construction spending fell 1.2% on a seasonally adjusted (SA) basis, the first decline since September 2011, following an increase of 0.9% in May. Year-to-date not seasonally adjusted (NSA) spending was up 34.5% from the same period in 2012.

June new residential construction spending fell 1.2% on a seasonally adjusted (SA) basis, the first decline since September 2011, following an increase of 0.9% in May. Year-to-date not seasonally adjusted (NSA) spending was up 34.5% from the same period in 2012.

New single-family construction spending slid 0.8% in June after edging 0.4% higher in May. New multifamily construction spending tumbled 3.1% in June after jumping 3.3% in May. On a year-to-date NSA basis, single-family construction spending was up 33.2% and multifamily spending was up 40.4% from the same period in 2012.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Apr-13 May-13 Jun-13 Apr-13 May-13 Jun-13 Jan-12 to
Jun-12
Jan-13 to
Jun-13
New Single-family 165.6 166.2 164.8 163.6 165.2 165.5 57.1 76.1
  Month-over-Month % Change 1.0% 0.4% -0.8% 2.5% 1.0% 0.2%    
  (Year-over-year % change of NSA data) 36.1% 33.5% 28.3% 35.8% 35.3% 32.4% 15.1% 33.2%
New Multifamily (2) 36.4 37.6 36.5 35.2 36.5 36.9 12.4 17.5
  3.1% 3.3% -3.1% 2.8% 3.6% 1.0%    
  43.2% 44.1% 29.7% 42.7% 43.0% 40.4% 13.2% 40.4%
New Residential (3) 202.0 203.8 201.3 198.8 201.7 202.4 69.6 93.6
  1.3% 0.9% -1.2% 2.5% 1.4% 0.3%    
  37.4% 35.3% 28.6% 37.0% 36.8% 33.5% 14.7% 34.5%
Residential Improvements (4) 127.3 134.5 136.9 127.0 129.2 132.9 58.1 60.1
  1.2% 5.7% 1.7% -1.4% 1.8% 2.8%    
  -2.2% 4.2% 6.2% 0.4% 1.3% 3.0% 3.8% 3.4%
Total Residential (5) 329.3 338.4 338.2 325.8 330.9 335.3 127.7 153.7
  1.3% 2.8% -0.1% 1.0% 1.6% 1.3%    
  18.8% 20.3% 17.9% 20.9% 20.5% 19.0% 9.5% 20.4%

(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 Reed Economics 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 dropped 2.2% to 591,000 starts at a seasonally adjusted annual rate (SAAR) in July following a 1.2% increase in June (revised up from a 0.8% decline). Year-to-date NSA single-family starts were 20.1% higher compared to the same period in 2012. Single-family building permits fell 1.9% to 613,000 in July after rising 0.8% in June.

The inventory of single-family homes for sale has been on the rise since July 2012, but remains historically low. Based on July’s SA home sales rate, the 171,000 new homes for sale represented a 5.2 months’ supply, below the historical norm of around a 6 months’ supply. The single-family existing house market is similarly tight, with a 4.8 months’ supply of homes for sale in July.

The recent decline in single-family housing starts, building permits, and sales appears to be the first sign that higher mortgage rates are taking a toll, even as rates remain extremely low by historical standards. Homebuilders and potential buyers may be stepping back to evaluate the changing economic landscape.

The NAHB/Wells Fargo Housing Market Index (HMI) rose three points in August to 59—its highest level since November 2005. August also marks the third month in a row that the HMI was above 50. Prior to June, the last time the HMI was above 50 was April 2006. A reading above 50 indicates more builders believe that sales conditions are good than believe they are poor. Increases in the HMI are usually followed by increases in single-family housing starts. However, given the recent decline in sales, homebuilders may be getting a bit too optimistic about the near-term outlook.

Multifamily Housing
Multifamily starts continued to display their volatile nature, shooting up 26.0% to 305,000 (SAAR) in July after plunging 24.8% in June. As a result of these monthly gyrations in multifamily starts, many analysts use the three-month moving average to better understand the direction of multifamily construction. The three-month moving average of starts for July rose 5.6% from June to 290,000.

The three-month moving average for multifamily building permits dropped 5.8% to 329,000 in July, an indication that developers are taking a breather. Higher interest rates are undoubtedly a major factor behind the slowdown.

Housing Starts Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  May-13 Jun-13 Jul-13 May-13 Jun-13 Jul-13 Jan-12 to
Jun-12
Jan-13 to
Jun-13
Jan-12 to
Jul-12
Jan-13 to
Jul-13
     Northeast Starts 101 82 115 91 87 99 38 44 46 55
       Month-over-Month
       % Change
27.8% -18.8% 40.2% -1.8% -4.4% 13.7%        
       Year-over-year
       % Change of NSA data
28.4% 1.3% 33.3% 13.5% 11.3% 21.1% 19.0% 16.8% 15.4% 19.7%
     Midwest Starts 135 126 158 143 138 140 52 62 63 78
  -12.3% -6.7% 25.4% 0.0% -3.3% 1.0%        
  22.8% 21.9% 38.1% 22.8% 22.9% 27.7% 10.7% 20.2% 12.9% 23.4%
     South Starts 482 431 401 483 442 438 194 240 226 277
  17.0% -10.6% -7.0% -1.6% -8.5% -0.8%        
  32.6% 13.6% 15.6% 30.1% 16.7% 20.5% 29.2% 23.6% 27.1% 22.4%
     West Starts 201 207 222 208 205 210 81 107 98 128
  -2.9% 3.0% 7.2% -3.4% -1.6% 2.4%        
  25.2% -0.5% 15.3% 35.4% 17.6% 12.1% 33.0% 33.4% 34.1% 30.1%
Total Starts (2) 919 846 896 925 872 887 364 453 433 537
  7.9% -7.9% 5.9% -1.8% -5.7% 1.7%        
  28.6% 9.5% 21.0% 28.1% 17.2% 19.4% 26.0% 24.5% 25.0% 23.9%
     Single-family Starts 597 604 591 604 598 597 257 310 306 367
  0.7% 1.2% -2.2% -2.9% -1.0% -0.1%        
  15.6% 11.9% 15.8% 21.0% 15.2% 14.4% 20.5% 20.9% 20.5% 20.1%
     Multifamily 322 242 305 321 274 290 108 143 127 170
  24.3% -24.8% 26.0% 0.5% -14.5% 5.6%        
  65.5% 3.0% 33.8% 45.6% 22.3% 32.7% 41.4% 33.1% 37.4% 33.2%
New Home Sales (3) 439 455 394 443 447 429 190 236 223 271
  -1.6% 3.6% -13.4% -0.4% 0.9% -3.9%        
  17.1% 26.5% 6.1% 21.4% 23.3% 16.7% 21.0% 24.2% 21.2% 21.5%
Manufactured Home
Shipments
61 54 NA 59 59 NA 28 29 32 NA
  -2.9% -10.8%   -0.4% 0.3%          
  7.9% 5.2%   6.1% 9.1%   19.7% 5.1% 19.0%  

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) Sales of single-family houses based on a survey of homebuilders;
excludes houses built for rent, built by owner, built under contract, and sales of multifamily units.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Residential Building Permits Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  May-13 Jun-13 Jul-13 May-13 Jun-13 Jul-13 Jan-12 to
Jun-12
Jan-13 to
Jun-13
Jan-12 to
Jul-12
Jan-13 to
Jul-13
     Northeast Permits 101 105 106 100 102 104 41 48 49 58
       Month-over-Month
       % Change
2.0% 4.0% 1.0% 6.4% 1.7% 2.3%        
       Year-over-year
       % Change of NSA data
32.9% 25.8% 24.7% 21.9% 23.3% 27.6% 21.6% 19.3% 26.6% 20.2%
     Midwest Permits 153 145 149 152 154 149 57 70 68 85
  -7.3% -5.2% 2.8% 1.1% 1.3% -3.5%        
  22.2% 12.8% 30.6% 25.4% 27.6% 21.8% 23.3% 23.5% 23.1% 24.6%
     South Permits 510 458 463 492 494 477 205 245 242 287
  -1.0% -10.2% 1.1% 1.5% 0.5% -3.5%        
  17.3% 8.1% 11.2% 23.4% 21.8% 12.4% 30.3% 19.7% 31.1% 18.4%
     West Permits 221 210 225 216 219 219 86 111 103 132
  -2.2% -5.0% 7.1% -1.8% 1.4% -0.2%        
  28.9% 6.6% 19.5% 23.6% 25.1% 18.1% 35.9% 29.0% 39.6% 27.4%
Total Permits (2) 985 918 943 960 969 949 388 475 463 562
  -2.0% -6.8% 2.7% 1.2% 1.0% -2.1%        
  22.1% 10.5% 17.5% 23.6% 23.7% 16.8% 29.4% 22.2% 31.1% 21.5%
     Single-family Permits 620 625 613 611 620 619 252 313 299 372
  1.0% 0.8% -1.9% 1.1% 1.4% -0.1%        
  24.1% 18.5% 24.1% 26.0% 25.3% 22.2% 20.6% 24.2% 22.3% 24.2%
     Multifamily Permits 365 293 330 349 350 329 136 162 163 190
  -6.6% -19.7% 12.6% 1.3% 0.2% -5.8%        
  18.6% -3.2% 6.0% 19.2% 20.6% 7.1% 49.5% 18.5% 51.2% 16.5%

(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) Total permits may not equal sum of regions due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Outlook for Residential Construction
The housing market has slowed in the face of higher interest rates and higher prices. Housing prices continue their upward movement in much of the country. On a year-over-year basis the May 10-city and 20-city S&P/Case-Shiller® Home Price Indexes were up 11.8% and 12.2%, respectively. On a SA monthly basis, both indexes have increased for 16 consecutive months. Following five months in which home prices for all 20 cities increased on a monthly basis, prices in two metros did decline—Cleveland (-0.5%) and Minneapolis (-0.2%). On a year-over-year basis, the June Freddie Mac House Price Index was up 9.3% and the June FHFA purchase-only home price index was up 7.8%.

Higher home prices are a two edged sword. Although they make it harder for the first-time homebuyer to purchase a house, they increase the net worth of existing homeowners. For homeowners with good credit, they can tap into their increased home equity for needed repairs or desired improvements.

At the same time, higher house prices have raised many home mortgages from below water to above water, making it in the homeowners’ interest to make their mortgage payments and avoid foreclosure. With house prices rising, individuals contemplating purchasing a house feel more confident making a purchase. Higher prices also give lenders more confidence extending loans to homebuyers and homebuilders.

However, higher mortgage rates do increase the cost for most homebuyers. The rapid increase in rates no doubt forced many potential buyers to reevaluate their plans if they had not already locked in a rate.

Nonetheless, current mortgage rates are historically low. The 30-year FHLMC fixed rate commitment mortgage rate averaged 4.4% in July, up from 3.5% just two months prior. But July’s rate was still lower than the 4.5% average for July 2011 and well below the 6.5% average from January 2000 through December 2005 and nowhere near the double digit rates experienced over a good part of 1990. Further, although higher rates may be giving some potential homebuyers pause, they are likely to eventually encourage those who were waiting for lower rates to enter the market and to proceed with a purchase before rates go even higher as they eventually will.

The underlying need, based on demographics, for both single-family and multifamily housing remains significant. Single-family annual new construction is currently at about a third of the nation’s long-run needs. Multifamily construction is roughly back to normal, but at the low end of the nation’s long-run needs even as rental demand continues to increase.

The Reed forecast is for new residential construction spending to increase 26.5% this year and to increase 11.9% in 2014.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 80 98 115
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.7% 22.3% 17.9%
     Midwest Starts 97 98 101 128 140 157
  -28.0% 0.8% 3.1% 26.8% 9.4% 12.4%
     South Starts 278 298 308 398 471 528
  -38.6% 6.9% 3.5% 29.2% 18.5% 12.1%
     West Starts 117 120 133 175 224 281
  -40.5% 2.7% 10.5% 32.2% 27.7% 25.7%
Total Starts (1) 554 587 609 781 932 1,082
  -38.8% 5.9% 3.7% 28.2% 19.4% 16.0%
     Single-family Starts 445 471 431 535 616 714
  -28.4% 5.9% -8.6% 24.3% 15.0% 16.0%
     Multifamily Starts 109 116 178 245 317 368
  -61.6% 6.2% 54.0% 37.7% 29.1% 16.0%
New Home Sales (2) 375 323 306 367 460 534
  -22.7% -13.9% -5.3% 19.9% 25.3% 16.0%
Manufactured Home Shipment 50 50 52 55 60 66
  -39.2% 0.5% 3.1% 6.3% 9.2% 10.2%
     Residential Construction Spending (Billions of Current Dollars)  
New Single-family 105.3 112.6 108.2 132.0 165.9 187.7
  -43.3% 6.9% -3.9% 22.0% 25.7% 13.1%
New Multifamily (3) 35.9 24.1 22.7 27.8 36.3 38.6
  -30.0% -32.9% -5.7% 22.6% 30.5% 6.3%
New Residential (4) 141.2 136.7 130.9 159.9 202.2 226.3
  -40.4% -3.2% -4.2% 22.1% 26.5% 11.9%
Residential Improvements (5) 112.7 112.5 121.8 126.7 135.6 151.2
  -6.6% -0.2% 8.3% 4.0% 7.1% 11.5%
Total Residential (6) 253.9 249.1 252.7 286.5 337.8 377.5
  -29.0% -1.9% 1.4% 13.4% 17.9% 11.7%

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) Sales of single-family houses based on a survey of homebuilders;
excludes houses built for rent, built by owner, built under contract, and sales of multifamily 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 Reed Economics 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.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

by Bernie Markstein

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