Construction Forecasts

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The U.S. Housing Market has Stepped up a Notch in Latest Four Months

03/20/2012 by Alex Carrick, RCD Canadian Chief Economist

U.S. home starts in February at 698,000 units, seasonally adjusted and annualized, eased back a little (-1.1%) from January, according to a joint press release from the Census Bureau and the Department of Housing and Urban Development.

The latest number needs some context. The month-to-month decline doesn’t seem so unfortunate when one realizes that January’s level was revised upward to 706,000 units from a previously-reported 699,000 units.

The revised January figure carries some significance because it was the highest level for starts since October 2008, more than three years ago.

Also noteworthy concerning this February’s starts level is the 34.7% increase compared with the same month of last year. That’s a sizable percentage gain of more than one-third. 

On average through the first two months of 2012, home starts have been +21.7% when compared with January-February 2011.

U.S. home starts entered a stronger phase in November of last year. In the past four months, they have averaged close to 700,000 units.

That’s still well below the range of 1.5 to 1.7 million that might be considered normal. But it’s a significant improvement versus April 2009’s trough of 478,000 units.

(As an aside, the previous peak level for home starts was 2.3 million in January 2006. More than six years have passed since then.)

Single-family starts on average this year have been +16.8% versus the same period last year.
That’s good news, but it pales compared with the performance of multi-family starts, +33.7%.

This provides further confirmation that the rental market is leading home-building out of its doldrums. Young people finding new employment and families dislodged from their properties by mortgage foreclosures are accounting for the rental demand.

The latest government report also provides reason to think the improvement in starts isn’t just a flash in the pan. The permit series – which is traditionally an advance indicator for starts – is showing strength as well.

February residential building permits, in seasonally adjusted units, were +5.1% month over month and +34.3% year over year.
Again, the multi-unit segment shone brighter. Permits for projects of five units or more (i.e., mainly condos) were +3.3% month to month and +59.9% year over year.

Mortgage rates continue to be at record lows, due to the Federal Reserve’s Operation Twist. This is an ongoing program whereby the Fed is selling $400 billion in short-term treasuries, with interest rates that are nearly 0.00%, and buying longer-term bonds.

Buying notes with longer-term maturities raises their price and lowers their yield. Mortgage rates are often tied to the 10-year Treasury rate.

Concerning the future for the home-building sector, the National Association of Realtors has reported that its January affordability index is at an all-time high (206.1), which is good news for potential buyers.

The affordability index is calculated from several series – median home prices which are extremely low, mortgage rates which offer all-time bargains and family incomes which remain solid.

Incomes are receiving a boost from the pick-up in employment that has seen 2.0 million net new jobs added in the past year and 3.5 million created since the low point (February 2010) for employment in the recession.

The Housing Market Index (HMI) calculated by Wells Fargo and the National Association of Home Builders stayed the same in March as in February. But the reading in those two months (28) is the highest since June of 2007.  

The HMI is designed to capture how builders in the single-family homes market view sales conditions. The specific sub-component of the HMI relating to expectations rose for the sixth month in a row in March.

The overall HMI index still has a ways to go. Only when it crosses above 50 will more homebuilders view conditions as good rather than poor. 

The obstacles still clogging up the market are tight credit conditions, both for buyers and builders, and a continuing large inventory of distressed properties.

Let’s conclude with the results for regional home starts through February.

The South has been leading the way, with average starts so far this year 30.2% above the first two months of last year.

Second and third positions go the West (+24.2%) and Midwest (+14.0%).

Only the Northeast is still down (-8.1%).

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Feb average 2011 = 0.577 million units;
Jan-Nov average 2012 = 0.702 million units (+21.7%).
U.S. Annual Starts:
2007 = 1.355 million units (-24.8%);
2008 = 0.906 million units (-33.1%);
2009 = 0.555 million units (-38.8%);
2010 = 0.587 million units (+5.9%);
2011 = 0.609 million units (+3.8%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.
U.S. and Canada: monthly housing starts
(seasonally adjusted at annual rates)
U.S. and Canada: Monthly housing starts
Data source: U.S. Census Bureau (Department of Commerce) and Canada Mortgage and Housing Corp. (CMHC).
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:
2010 = 71,600 units;
2011 = 67,700 units (-5.4%).
U.S. midwest annual starts:
2010 = 97,900 units;
2011 = 100,900 units (+3.1%).
Jan-Feb average 2011 = 74,500 units;
Jan-Feb average 2012 = 68,500 units (-8.1%).
Jan-Feb average 2011 = 89,000 units;
Jan-Feb average 2012 = 101,500 units (+14.0%).
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:
2010 = 297,500 units;
2011 = 307,800 units (+3.5%).
U.S. west annual starts:
2010 = 119,900 units;
2011 = 132,500 units (+10.5%).
Jan-Feb average 2011 = 308,000 units;
Jan-Feb average 2012 = 401,000 units (+30.2%).
  Jan-Feb average 2011 = 105,500 units;
Jan-Feb average 2012 = 131,000 units (+24.2%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.


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