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Partly caused by inflation, U.S. home starts stumbled in April

05/17/2011 by Alex Carrick, RCD Canadian Chief Economist

U.S. housing starts stumbled again in April, according to the Census Bureau and Department of Housing and Urban Development. They fell back to only 523,000 units seasonally adjusted and annualized, down from 585,000 in March. However, they had been even lower in February of this year, at 518,000 units. The lowest number in the past nearly three years of rock-bottom home starts was 478,000 units seasonally adjusted and annualized in April 2009.

Regionally, the drop in national starts month over month (-10.6%) was almost entirely based in the South (-23.0%). The Northeast recorded a small percentage decline (-4.8%), while the West (+3.7%) and Midwest (+15.7%) registered increases. Even with its April decline in starts, the South still accounted for more than half (53%) of the country-wide total.

The U.S. economy is now in the sixth year of a horrendous housing market slump. The past two-and-a-half years have been especially onerous, with starts mired close to 500,000 units per month. In normal times, never mind boom times, U.S. home starts have approached two million.

It will be very hard for the overall economy to return a vibrant growth path until all the dead lumber, so to speak, in the housing sector is cleared out. That means a return to more normal foreclosure rates, home prices that are reliably on the upswing and a steady stream of new demand because employment prospects have caused labor mobility to increase substantially.

As for starts in the next couple of months, the news doesn’t get any better. Residential building permits, which are an advance indicator for starts – by one or two months – were 4.0% lower in April than in March. On a year-over-year basis, they were nearly 13.0% below April 2010.

There has been a split in the market when it comes to single-family units versus multiples. The average level of starts in the singles category through the first four months of this year was -23.3% compared with January-April 2010. Multiples, on the same basis, were +56.2%. However, there was a downward adjustment (-24.1% month over month) in the multiples market in April.

The U.S. Consumer Price Index for April provided insight into one reason why the housing market is so quiet. While home prices have been showing steady erosion so far this year, as recorded by the S&P Case-Shiller index, the price level for a basket of consumer goods has been rising. April’s Consumer Price Index climbed to +3.2% year over year from +2.7% in March.

The “core” rate, which excludes energy and food, may have still been restrained at +1.3%, but people do have to eat, travel and stay warm (or cool, depending on the time of year). The food sub-index was +3.2% and energy came in at +19.0%. The all-important year-over-year change in the price of gasoline was +33.1%. That makes it a lot more expensive to drive to work or out shopping or to the entertainment district for a night of fun. People start watching their pennies.

In Canada, the Canadian Real Estate Association (CREA) has recently reported on the resale homes market in April. There has been some softening of late due to the introduction of a tighter mortgage approvals process as enacted by Ottawa. This was well anticipated and brought sales forward earlier in the year. It caused sales activity to drop (-4.4%) in April versus March. Listings in April were a little higher than in March but well down from January and February.

The national average price for homes sold in April was 8% higher than in the same month last year. In recent months, the sale of high-priced homes in Vancouver has distorted the national average. According to CREA, there was some moderation in this effect in the latest month.

On that subject, however, Bloomberg News (March 17 2011) has posted a story outlining that home prices in Vancouver, on average, are now pricier than in New York. The primary reason has been an influx of money from mainland China. The city is popular because of its more temperate climate than in eastern Canada, its history of accepting Chinese immigrants, which has led to a large ex-patriot community, and exceptional availability of high-quality schooling.

Beijing has taken several steps to reduce property speculation in China. At the same time, there has been a leap forward in the number of affluent individuals in that nation. They are looking for somewhere to diversify their holdings. The three English-speaking cities worldwide that have been magnets for Chinese property investment have been Hong Kong, Sydney and Vancouver. 

U.S. monthly housing starts
U.S. monthly housing starts
April 2010 = 0.633 million units;
April 2011 = 0.566 million units (-10.6%).
U.S. Annual Starts:
2006 = 1.801 million units (-12.9%);
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2009 = 0.587 million units (+5.9%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. regional housing starts
U.S. northeast housing starts   U.S. midwest housing starts
U.S. northeast housing starts   U.S. midwest housing starts
U.S. northeast annual starts:
2009 = 61,800 units;
2010 = 71,600 units (+15.9%).
 
U.S. midwest annual starts:
2009 = 97,100 units;
2010 = 97,900 units (+0.8%).
Jan-Apr average 2010 = 73,000 units;
Jan-Apr average 2010 = 68,000 units (-6.8%).
 
Jan-Apr average 2010 = 103,300 units;
Jan-Apr average 2010 = 89,300 units (-13.6%).
     
U.S. south housing starts   U.S. west housing starts
U.S. south housing starts   U.S. west housing starts
U.S. south annual starts:
2009 = 278,200 units;
2010 = 297,500 units (+6.9%).
 
U.S. west annual starts:
2009 = 116,800 units;
2010 = 119,900 units (+2.7%).
Jan-Apr average 2011 = 328,500 units;
Jan-Apr average 2011 = 300,500 units (-8.5%).
  Jan-Apr average 2011 = 128,000 units;
Jan-Apr average 2011 = 107,800 units (-15.8%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. inflation: all items (CPI-U) vs all items less food and energy
(not seasonally adjusted)
U.S. inflation: all items (CPI-U) vs all items less food and energy
In the U.S., the change in the energy sub-component index was +19.0% year over year in April 2011.

The U.S. figure (CPI-U) is the All Items Consumer Price Index for All Urban Consumers.
Data source: U.S. Bureau of Labor Statistics (Department of Labor).
Chart: Reed Construction Data - CanaData.

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