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New Residential Construction Spending Rises Again in July

09/25/2012 by Bernard M. Markstein, RCD US Chief Economist

New residential construction spending continued its recent upward march, increasing 1.5% on a seasonally adjusted (SA) basis in July after jumping 3.3% in June. Spending has risen for four consecutive months and for 12 of the last 14 months. On a year-to-date not seasonally adjusted (NSA) basis, new residential construction spending was up 13.9%. The rise in spending is being powered by both single-family construction spending, which advanced 1.5% after spurting up 3.1% in June, and multifamily construction spending, which was up a healthy 2.0% in July after soaring 4.0% the previous month. On a year-to-date basis, single-family and multifamily construction spending were up 13.5% and 15.8%, respectively, from the same period in 2011.

Residential improvements, which are not included in the new residential construction spending numbers but in the total residential spending numbers, plunged 5.4% in July after increasing 1.4% in June. Despite the July drop, improvements spending was up 3.2% on a year-to-date basis compared to the same period in 2011. The July fall in the improvements number was sufficient to offset the rise in new residential construction spending, pulling total residential construction spending down 1.6% after rising 2.4% in June. On a year-to-date basis, total residential construction spending was up 8.9%.

The improvements spending numbers are among the least reliable and subject to the greatest revisions of the construction spending numbers that the Census Bureau reports. The improvements spending data have been less reliable since the elimination of the Survey of Residential Additions and Remodeling (SORAR) by the Census Bureau at the end of 2007 due to budgetary constraints.

The Census Bureau has plans to implement a residential remodeling survey in FY 2014 that would essentially replace SORAR if funding can be obtained, an unlikely outcome. The lack of a suitable residential remodeling survey undermines not just the accuracy of the residential construction spending data, but also the residential component of the National Income and Product Accounts (NIPA), which is a component of gross domestic product (GDP). Sadly, even as our economy becomes more complex and the need for more extensive and precise data grows, lack of proper funding for data collection and analysis is resulting in the deterioration of the accuracy and quality of economic data.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  May-12 Jun-12 Jul-12 May-12 Jun-12 Jul-12 Jan-10 to
Jul-11
Jan-11 to
Jul-12
New Single-family 121.8 125.6 127.5 119.7 122.3 125.0 59.7 67.8
  Month-over-Month % Change 1.9% 3.1% 1.5% 1.1% 2.2% 2.1%    
  (Year-over-year % change of NSA data) 14.7% 18.4% 19.4%       -8.6% 13.5%
New Multifamily (2) 26.3 27.4 27.9 25.3 26.4 27.2 12.8 14.8
  3.3% 4.0% 2.0% 3.0% 4.4% 3.1%    
  20.5% 19.2% 25.3%       -8.2% 15.8%
New Residential (3) 148.1 153.0 155.4 145.0 148.7 152.2 72.5 82.6
  2.1% 3.3% 1.5%          
  15.7% 18.6% 20.4%       -8.5% 13.9%
Residential Improvements (4) 120.8 122.5 115.9 116.9 119.6 119.7 63.7 65.7
  4.5% 1.4% -5.4% 0.9% 2.3% 0.1%    
  -5.2% 6.5% 12.9%       0.9% 3.2%
Total Residential (5) 268.9 275.5 271.2 261.9 268.4 271.9 136.2 148.3
  3.2% 2.4% -1.6% 1.2% 2.5% 1.3%    
  5.0% 12.7% 17.1%       -4.3% 8.9%

(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
(3) New Residential = New Single-family + New Multifamily
(4) Residential Improvements include remodeling, renovation and replacement work. Number also includes RCD estimate of improvements to public housing.
(5) Total Residential = New Single-family + New Multifamily + Residential Improvements. Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Single-Family Housing
The Census Bureau reported that August total housing starts reversed July’s drop of 2.8% (SA), increasing 2.3%. The increase was due to single-family housing starts jumping 5.5% to 535,000 at a seasonally adjusted annual rate (SAAR) from July’s 507,000. Single-family housing starts have been above 500,000 for seven of the last nine months.

Single-family building permits rose for the fifth month in a row, although they inched up a bare 1,000 to 512,000 from July’s 511,000. Nonetheless, permits were at their highest level since March 2010. Meanwhile, the September NAHB/Wells Fargo Housing Market Index (HMI) was up 3 points to 40 after rising 2 points the previous month. The September HMI is at its highest level since June 2006. Gains in the HMI usually precede rises in housing starts by one to two months.

Multifamily Housing
August multifamily starts plummeted 4.9% to 215,000 (SAAR), after surging 4.1% in July. Since multifamily starts move around a lot from month to month, it is more useful to look at the three-month moving average. August’s three-month moving average of 219,000 was up 3.5% from July. Also, the moving average has been above 200,000 starts for ten consecutive months. Meanwhile, August’s three-month moving average of multifamily building permits at 287,000 was down only slightly from July’s 288,000, which was the highest the average has been since September 2008.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Jun-12 Jul-12 Aug-12 Jun-12 Jul-12 Aug-12 Jan-10 to
Jul-11
Jan-11 to
Jul-12
Jan-10 to
Aug-11
Jan-11 to
Aug-12
     Northeast Starts 78 87 76 78 80 80 40 46 45 53
       Month-over-Month % Change 2.6% 11.5% -12.6% -3.7% 3.0% 0.0%        
       Year-over-year % Change of NSA data 13.0% 2.5% 36.5%       -4.1% 15.9% -7.1% 18.3%
     Midwest Starts 100 111 134 111 106 115 56 64 65 77
  -7.4% 11.0% 20.7% -4.6% -4.2% 8.2%        
  -18.9% 26.4% 58.1%       -1.6% 13.6% -4.9% 19.5%
     South Starts 368 351 364 376 361 361 178 227 205 259
  0.8% -4.6% 3.7% 1.3% -3.9% -0.1%        
  31.6% 17.3% 18.7%       -5.1% 27.6% -3.6% 26.4%
     West Starts 208 184 176 171 183 189 73 98 87 115
  32.5% -11.5% -4.3% 13.0% 7.2% 3.5%        
  54.6% 41.7% 25.4%       1.9% 34.0% 2.0% 32.6%
Total Starts (2) 754 733 750 736 731 746 347 434 401 504
  6.8% -2.8% 2.3% 2.2% -0.6% 2.0%        
  23.5% 21.9% 28.3%       -3.1% 25.3% -3.1% 25.7%
     Single-family Starts 537 507 535 518 519 526 254 307 293 357
  4.7% -5.6% 5.5% 3.7% 0.2% 1.4%        
  23.0% 21.7% 25.9%       -14.6% 21.0% -12.8% 21.7%
     Multifamily 217 226 215 218 212 219 93 127 108 148
  12.4% 4.1% -4.9% -1.2% -2.6% 3.5%        
  24.8% 22.3% 34.4%       53.0% 37.2% 38.6% 36.8%
New Home Sales (3) 359 372 NA 363 368 NA 184 224 NA NA
  -3.5% 3.6%   0.6% 1.3%          
  21.4% 25.9%         -11.5% 21.7%    
Manufactured Home Shipments 51 51 NA 54 53 NA 26828 31936 NA NA
  -8.9% -0.1%   -3.7% -2.1%          
  1.1% 14.8%         -12.5% 19.0%    

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) Total may not equal the sum of its components due to rounding.
(3) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Outlook for Residential Construction
The housing market continues to trend upward subject to the normal monthly movements.

  • The foreclosure problem is slowly improving.
  • Prices for single-family homes in many metro markets are flat to up, bolstering the willingness of prospective home buyers to make a purchase and of lenders to provide them with home mortgages.
  • Although conservative appraisals remain a drag on the housing market’s recovery, there has been some modest improvement in the process. With housing prices rising, appraisals should begin to reflect the better tone of the housing market.

The multifamily construction outlook is for continued growth. Our forecast for multifamily construction assumes the continuation of low interest rates, falling vacancy rates, and escalating rents. The forecast for single-family housing is for construction to stay on the present path of improvement from its admittedly present low level. Continued economic growth, increases in employment, historically low mortgage rates, and the Federal Reserve’s plan to purchase mortgages all point to further improvement for the housing market and thus for residential construction.

This month we extend the forecast horizon out to 2014. The new residential construction spending forecast is for an increase of 16.8% in 2012, 17.1% in 2013, and 15.2% in 2014. These increases are from a low base. Residential construction activity will still be below the nation’s long-term need based on demographics even by the end of 2014.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 80 95 111
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 18.0% 18.2% 17.5%
     Midwest Starts 97 98 101 118 139 150
  -28.0% 0.8% 3.1% 16.7% 18.0% 8.1%
     South Starts 278 298 308 381 411 466
  -38.6% 6.9% 3.5% 23.9% 7.7% 13.6%
     West Starts 117 120 133 174 233 298
  -40.5% 2.7% 10.5% 31.4% 33.6% 28.0%
Total Starts (1) 554 587 609 753 877 1026
  -38.8% 5.9% 3.7% 23.7% 16.4% 17.0%
     Single-family Starts 445 471 431 525 608 706
  -61.6% 6.2% 54.0% 28.2% 17.8% 18.6%
     Multifamily Starts 109 116 178 229 269 319
  -28.4% 5.9% -8.6% 21.8% 15.8% 16.3%
New Home Sales (2) 375 323 306 366 420 513
  -22.7% -13.9% -5.3% 19.7% 14.6% 22.0%
Manufactured Home Shipments 50 50 52 57 64 72
  -39.2% 0.5% 3.1% 9.7% 12.5% 12.9%
     Residential Construction Spending (Billions of Current Dollars)    
New Single-family 105.3 112.6 108.2 125.5 145.2 167.6
  -43.3% 6.9% -3.9% 16.0% 15.7% 15.4%
New Multifamily (3) 35.9 24.1 22.6 27.3 33.7 38.4
  -30.0% -32.9% -6.0% 20.8% 23.2% 14.1%
New Residential (4) 141.2 136.7 130.8 152.8 178.9 206.1
  -40.4% -3.2% -4.3% 16.8% 17.1% 15.2%
Residential Improvements (5) 112.7 112.5 114.9 119.3 124.2 132.8
  -6.6% -0.2% 2.2% 3.8% 4.1% 7.0%
Total Residential (6) 253.9 249.1 245.7 272.1 303.1 338.9
  -29.0% -1.9% -1.4% 10.7% 11.4% 11.8%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Total starts may not equal sum of regions due to rounding.
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
(3) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
(4) New Residential = New Single-family + New Multifamily
(5) Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.
(6) Total Residential = New Single-family + New Multifamily + Residential Improvements.
Total Residential may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.


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