Construction Forecasts

News & Analysis

U.S. home starts in April added to other generally good news

05/16/2012 by Alex Carrick, RCD Canadian Chief Economist

U.S. new home starts in April were a source of optimism concerning the economic outlook. While they didn’t set a blistering pace, they did move significantly in the right direction.

At 717,000 units, seasonally adjusted and annualized, they were +2.6% versus March and +29.9% when compared with April of last year.

Since the start of this year, a period of four months, U.S. home starts have averaged 714,000 units seasonally adjusted and annualized. That’s an increase of 24.0% (i.e., nearly one-quarter) over the first four months of 2011.

The 717,000-unit figure in April was a step up from March’s 699,000 units, but fell slightly short of February’s 718,000 units and January’s 720,000.

The monthly numbers for the last two and one-third years have all been recently revised. In the revision process, February went from 694,000 units to 718,000. The climb in March was even greater, from 654,000 to 699,000.

Large revisions are typical at turning points in a cycle. It takes a while for some automatic surveying and estimating techniques to catch up with what is actually happening in the marketplace.

The large upward revisions in February and March suggest –– but don’t guarantee – that the improvement in the new homes market is taking hold more firmly.

One surprising feature in the latest home starts statistics is the consistency of the improvement in almost all of the four major geographic regions.

While the nation-wide increase – based on average annualized monthly starts in the first four months of this year versus the same period last year – has been +24.0%, the Midwest (+26.3%), the South (+25.5%) and the West (+25.6%) have all recorded very similar percentage gains.

Only the Northeast (+11.3%) has been more hesitant in its new-home ground-breakings.

An advance indication that April’s housing starts would be sprightly came from residential building permits in March that were +4.5% month over month.

In the latest month, permits were -7.5% versus March, although +23.7% when compared with April of last year. The weak month-over-month performance in April may have a special explanation.
It is significant to note that March’s level of permits – high to begin with at 747,000 units – was revised up further in April to 769,000 units. Therefore, the percentage change comparison was bound to suffer.

“Permits” may be another series that is slow adjusting to an altered housing market reality.

In other U.S. economic news, the Federal Reserve has reported that industrial production in April advanced by a strong 1.1%. That was a welcome turnaround from March, which experienced a 0.6% decline. February’s shift was +0.4%.

It wasn’t just the stronger-than-expected 1.1% charge in April that was such good news. It was the composition of the gain. Manufacturing output rose by a lesser amount 0.6%, but motor vehicle and parts production increased at an impressive 4.0% rate.

U.S. auto sector sales in the first quarter of this year were their best in four years, dating back to the first quarter of 2008.

Manufacturing comprises 75% of industrial production. The remaining one-quarter is made up of utilities (+4.5% month to month in April) and mining (+1.6%).

In Canada, manufacturing sales rose 1.9% in March (the latest month for which data is available), according to Ottawa’s statistical agency.

Similar to the U.S., the auto sector performed well (+2.3%), but the largest increases came in petroleum and coal products (+4.5%) and in aerospace products and parts (+9.9%).

Strength in the former was mainly due to heightened volumes at oil refineries. The latter is a sector that has a notoriously volatile sales history.

What’s the latest on Canadian residential markets? The Canadian Real Estate Association (CREA) has reported that existing home sales in April were +0.8% versus March.

Year over year, they were +11.5%, but April of last year was adversely affected by the introduction of tighter mortgage approval rules.

Average resale home prices across Canada in the most recent April were +0.9% year over year, but there have been some unique regional influences on the national average.

In particular, Vancouver experienced inordinately high prices early last year when exclusive upper-end properties were in hot demand. The subsequent retreat from what was not sustainable has dropped prices in that city by almost 10%. 

Leaving Vancouver out of the equation, year-over-year resale home prices in Canada were +4.9% in April.

Toronto is said to be the most active housing market in the country at this time.

Calgary, Montreal, Winnipeg and Edmonton are also mentioned as currently generating positive real estate vibes.

U.S. monthly housing starts
U.S. monthly housing starts
Jan-Apr average 2011 = 0.576 million units;
Jan-Apr average 2012 = 0.714 million units (+24.0%).
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. 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-Apr average 2011 = 66,500 units;
Jan-Apr average 2012 = 74,000 units (+11.1%).
 
Jan-Apr average 2011 = 89,300 units;
Jan-Apr average 2012 = 112,800 units (+26.3%).
     
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-Apr average 2011 = 309,300 units;
Jan-Apr average 2012 = 388,000 units (+25.4%).
  Jan-Apr average 2011 = 110,500 units;
Jan-Apr average 2012 = 138,800 units (+25.6%).
Data source: U.S. Census Bureau (Department of Commerce).
Chart: Reed Construction Data - CanaData.

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