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ECONOMIC NUGGETS – June 29, 2012

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Bernie Markstein

Positions: Chief Economist
Well known for his work as Senior Economist and Vice President of Economic Forecasting and Analysis for the National Association of Home Builders (NAHB), Dr. Markstein has provided analysis on national and regional housing issues; tracking developments, trends in the multifamily housing market and forces affecting building materials prices.

Economists

Economic nuggets from the past two weeks/' news headlines and industry publications.

Here are some economic nuggets from the past two weeks’ news headlines and industry publications.

  1. The European debt crisis continues to be dealt with in the usual fashion—addressing immediate problems as they crop up without any true long-term solution. In other words, European policy makers continue to muddle through. They have now agreed to use bailout funds to recapitalize the Spanish banks, averting the most recent crisis.
  2. Europe also received a temporary reprieve when the Greeks provided New Democracy, the establishment center-right party, with a plurality. However, without a majority New Democracy was forced to form a coalition government with two center-left parties. This is an unstable situation since differences could easily result in the alliance disintegrating and the government falling.
  3. More evidence is emerging that single-family housing is on a modest upward trajectory. After falling the previous two months, May new home sales surged 7.6% to 369,000 at a seasonally adjusted annual rate (SAAR), its highest reading since April 2010 when a since expired home-buyer tax credit temporarily stimulated sales.
  4. The May inventory of new homes for sale at 145,000 remained near the previous two months’ record low of 144,000. With May’s relatively strong sales rate, that reduced the months’ supply of homes for sale to 4.7 months, a reading many consider balanced and its lowest level since October 2005.
  5. Single-family housing starts advanced for the third month in a row, up 3.2% in May to 516,000 (SAAR) from April’s 500,000, which was revised up from the previously reported 492,000. Single-family building permits also increased, up 3.2% to 490,000 from April’s 475,000.
  6. The June NAHB/Wells Fargo Housing Market Index (HMI) inched up 1 to 29, its highest reading since May 2007, indicating that home builders are slightly more positive on their outlook. Increases in the HMI often are followed by higher single-family housing starts within one to two months. 
  7. Multifamily housing starts plunged 21.3% to 192,000 (SAAR) from 244,000 in April, revised up from 225,000. Given the notorious volatility of the measure, the 3-month moving average provides a better picture of new activity. The average was still down, but a more modest 7.9% in May to 218,000.
  8. On the positive side, May’s 3-month moving average of multifamily building permits of 279,000 was their highest reading since October 2008. This suggests continued strength in multifamily production over coming months, one of the few really positive areas for housing lately.
  9. One troubling indicator is that the AIA Billings Index fell for the third month in a row to 45.8 in May from April’s 48.4. A reading below 50 indicates decreased billings. 
  10. The May Producer Price Index (PPI) for building materials prices (does not include labor costs) edged up 0.1% on a seasonally adjusted (SA) basis after increasing 0.3% in April and was up 2.7% from May 2011. Meanwhile, an index of prices for inputs to nonresidential construction fell 0.6% not seasonally adjusted (NSA) after no change in April. The index was up a modest 0.6% from May 2011. 

by Bernie Markstein

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