Construction Forecasts

News & Analysis

November home starts in the U.S. mean more chimneys for Santa to descend

12/20/2011 by Alex Carrick, RCD Canadian Chief Economist

As set out in a joint news release from the Census Bureau and the Department of Housing and Urban Development, U.S. home starts in November rose 9.3% month to month and a smile-inducing 24.3% year over year.

With one exception – April 2010 at 687,000 units, which turned out to be an anomaly – one has to go all the way back to October 2008 (777,000 units) to find a monthly number that was higher.

In the fall of 2008, the data series was on a downward trajectory.

U.S. housing starts most recently peaked a long time ago, in January 2006 at 2.3 million units, seasonally adjusted and annualized.

What are the markers pointing to improvement in the homebuilding sector? The number of people finding work in the U.S. is increasing, initial jobless claims are declining, interest rates remain remarkably attractive and home prices offer bargains.

The multiples market, which is only 35% of the total, is continuing to outperform single-family home demand. Multi-unit starts in November were +25.3% versus October and +145% when compared with November of 2010.

Single-family starts were more stable, +2.3% month to month and -1.5% year over year.

Regionally, the West (+10.3%) has recorded the largest year-to-date percentage gain, followed by the South (+2.5). Neither the Midwest (-4.4%) nor the Northeast (-5.0%) has quite caught up with the starts performance in the same January to November period of last year.    

The results with respect to home starts are consistent with the latest survey results from the National Association of Home Builders. The NAHB/Wells Fargo Housing Market Index (HMI) in December rose for the third consecutive month to its highest position (21) since May, 2010.

Not since mid-2009, has the index risen for three months in a row.

The fact the market still has a ways to go, however, is demonstrated by the fact it takes a figure over 50 to indicate more builders view conditions as good than poor.

Nevertheless, results are looking up. Furthermore, the overall index is comprised of three sub-indices, each of which has shown an improving trend for three straight months.

The “current sales” sub-index rose to 22; “sales expectations in the next six months” climbed to 26; and “traffic of prospective buyers” rose to 18, the strongest it’s been since May 2008.

Regionally, it was the South where single-family home-builder confidence improved the most in the latest reading.

What are the implications for construction costs in the U.S. and Canada?  

A steady improvement in the U.S. housing market will mean a pick-up in lumber prices, especially given the unhealthy volume of sawmill closures and capacity reductions in the last several years.

U.S. non-residential construction starts have been trending gradually higher more emphatically than home starts.

The dollar volume so far this year has been +9% compared with the same January to November period in 2010, according to Reed Construction Data (RCD).

The break-down is non-residential buildings at +12% and heavy engineering, +5%.

Outside North America, there are counterbalancing forces at work with respect to costs.

The outlook for the world economy has turned more uncertain. The European debt crisis and all it may mean for credit markets has cast a cloud over world growth prospects.

A weaker European economy will mean fewer export sales by China, thereby throwing doubt on whether that nation can maintain its double-digit growth rate.  

As a result, many commodity prices have been pulling back from their recent highs.

Since building products are obviously made from resources, construction material costs are being constrained at the moment.  

As 2012 proceeds, however, construction costs will likely gradually increase.

In the U.S., the upward bias will come more from materials than labor. In Canada, the opposite will probably hold true.

North of the border, there are problems finding and attracting well-trained workers to do what’s needed on very large and complex resource-related construction projects.

Bidding up the price for a scarce resource (i.e., skilled labour) is a natural consequence.

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Nov average 2010 = 0.590 million units;
Jan-Nov average 2011 = 0.602 million units (+2.0%).
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-Nov average 2010 = 72,700 units;
Jan-Nov average 2011 = 69,100 units (-5.0%).
Jan-Nov average 2010 = 100,300 units;
Jan-Nov average 2011 = 95,800 units (-4.4%).
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-Nov average 2010 = 298,300 units;
Jan-Nov average 2011 = 305,800 units (+2.5%).
  Jan-Nov average 2010 = 119,000 units;
Jan-Nov average 2011 = 131,300 units (+10.3%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.


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