Construction Industry Forecasts

Notes from Bernie Markstein - Dec 21, 2011

Bernie Markstein
Good News for Housing
Bernie Markstein, RCD US Chief Economist

It's not quite time to do a victory dance for the housing market, but the December 20th report from the U.S. Census Bureau on October housing starts extends the recent string of good news on the residential construction front:

  • Total housing starts rose 9.3%, from October’s revised 627,000 to 685,000 in November (seasonally adjusted annual rate) 
  • Single-family starts continued their general trend upward, rising 2.3% to 447,000
  • Multifamily starts remained a bright spot, jumping 25.3% to 238,000


Since multifamily starts tend to be volatile from month to month, it is worth looking at their three-month moving average, which has risen in nine of the last eleven months. The November average was 215,000, up 13.8% from October’s 189,000, and was the first time the average has been above 200,000 since November 2008.

Building Permits Up, Markets Expanding
Meanwhile,  both single-family and multifamily building permits have been trending upward for about a year. In November, single-family permits rose 1.6% to 435,000 and multifamily permits increased a healthy 13.9% to 246,000.

Other good news for housing includes the December National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which was up two points to 21, its third consecutive monthly increase.  Although low by historical standards, this is the highest HMI reading since May 2010, when the reading was just one point higher at 22. Further, the December NAHB/First American Improving Markets Index (IMI) reported 41 markets expanding, up from 30 in November and the fourth consecutive month that this number has increased. Washington, DC and San Jose, CA were among the important markets that have experienced expansion.

New and Existing Home Sales Improve
October sales of new single-family homes increased for the second consecutive month and stood at their highest level since May. Existing home sales reported by the National Association of Realtors® (NAR) rose in October from September and stood at their second highest level since April. NAR’s Pending Home Sales Index also indicated a healthy increase in October, and was higher than a year earlier.

Positive Outlook for Multifamily Construction
Although multifamily construction starts remain below the level that meets the long-term needs of the economy, multifamily rental properties continue to benefit from an improving economy and employment market. As individuals and families get back on their feet financially, a large percentage of those who are in a shared living arrangement move out into multifamily rental properties. This trend,  coupled with low long-term interest rates, suggests that multifamily construction will remain on an upward track.

2012: Foreclosures Continue
At the same time, we have to keep the good news for single-family housing in perspective.  Despite the positive signs, single-family residential construction faces a long, painful slog upward. The market continues to be burdened by foreclosures,  which are expected to move higher over coming months, due to 1) difficulty in obtaining financing for both builders and prospective buyers; 2) overly negative appraisals by lenders; and 3) low consumer confidence.

Market Improves Despite EU
Still, the market is benefiting from exceptionally low interest rates, some easing of lending standards, and continued improvement in the national economy and in employment. Although the U.S. is experiencing a sub-par recovery and faces multiple threats, including those posed by the European debt crisis, the economy has shown slow but steady improvement. That progress is helping the multifamily housing market and is even beginning to provide a boost to the moribund single-family housing market.

So, although we can’t claim economic victory yet, let’s celebrate the recent successes by popping the cork on a bottle of champagne and welcoming in the New Year! Oh, what the heck, go ahead and enjoy a dance. Here’s to 2012!

How did your business fare in 2011? Let me know by posting a comment.

Housing Starts

  Percentage Change
  Seasonally Adjusted Data at
an Annual Rate
from Previous Month Year-
  Nov-11 Oct-11 Sep-11 Nov-10 Nov-11 Oct-11 Sep-11 Nov-11
Total Starts 685 627 630 551 9.3% -0.5% 7.7% 27.6%
  SF Starts 447 437 414 454 2.3% 5.6% -2.6% -2.1%
  MF Starts 238 190 216 97 25.3% -12.0% 35.0% 156.6%
    2-4 Starts 8 16 5 15 -50.0% 220.0% -28.6% -50.0%
    5 or more Starts 230 174 211 82 32.2% -17.5% 37.9% 195.3%

Building Permits

  Percentage Change
  Seasonally Adjusted Data at
an Annual Rate
from Previous Month Year-
  Nov-11 Oct-11 Sep-11 Nov-10 Nov-11 Oct-11 Sep-11 Nov-11
Total Permits 681 644 589 564 5.7% 9.3% -5.8% 23.2%
  SF Permits 435 428 413 420 1.6% 3.6% -1.2% 4.1%
  MF Permits 246 216 176 144 13.9% 22.7% -15.0% 73.5%
    2-4 Permits 22 23 20 20 -4.3% 15.0% -20.0% 5.9%
    5 or more Permits 224 193 156 124 16.1% 23.7% -14.3% 85.4%


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