New Residential Construction Spending — Another Strong Performance in August

10/29/2012 by Bernard M. Markstein

Housing is now a bright spot on the economic landscape. For the fifth consecutive month, new residential construction spending increased, leaping 2.9% on a seasonally adjusted (SA) basis in August after moving up 1.6% in July. Not seasonally adjusted (NSA) year-to-date spending was 14.8% higher than a year ago. Single-family construction spending shot up 2.8% in August after rising 1.6% in July. Multifamily construction spending catapulted an even stronger 3.2% higher after gaining 1.8% in July. Year-to-date, single-family construction spending was 14.5% higher than 2011, while multifamily spending was up 16.6%.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Jun-12 Jul-12 Aug-12 Jun-12 Jul-12 Aug-12 Jan-11 to
Aug-11
Jan-12 to
Aug-12
New Single-family 125.6 127.6 131.2 122.3 125.0 128.1 70.0 80.1
  Month-over-Month % Change 3.1% 1.6% 2.8% 2.2% 2.2% 2.5%    
  (Year-over-year % change of NSA data) 18.0% 18.9% 20.8%       -7.6% 14.5%
New Multifamily (2) 27.4 27.9 28.8 26.4 27.2 28.1 14.9 17.4
  4.3% 1.8% 3.2% 4.5% 3.1% 3.1%    
  19.3% 24.9% 21.7%       -6.6% 16.6%
New Residential (3) 153.0 155.5 160.0 148.7 152.2 156.2 84.9 97.5
  3.3% 1.6% 2.9%          
  18.2% 19.9% 21.0%       -7.4% 14.8%
Residential Improvements (4) 124.7 121.9 119.9 120.4 122.5 122.2 74.6 78.8
  3.2% -2.2% -1.7% 2.9% 1.8% -0.3%    
  7.9% 22.1% 9.3%       0.7% 5.5%
Total Residential (5) 277.7 277.4 279.9 269.1 274.7 278.3 159.6 176.3
  3.3% -0.1% 0.9% 2.7% 2.1% 1.3%    
  13.2% 20.8% 15.5%       -3.8% 10.5%

(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
September single-family housing starts jumped 11.0% to 603,000 at a seasonally adjusted annual rate (SAAR), the highest they have been since August 2008, according to the Census Bureau. This follows a strong 7.3% increase in August to 543,000.

Single-family building permits were up as well, increasing 6.7% to 545,000, their highest level since July 2008, from August’s 511,000. Builders remain optimistic as shown by the October NAHB/Wells Fargo Housing Market Index (HMI), which edged up 1 point to 41 after rising 3 points the month before. The October HMI is at its highest level since June 2006. The direction of changes in the HMI has proved to be a strong indicator of the direction of future changes in housing starts by one to two months.

Multifamily Housing
September multifamily starts skyrocketed 25.1% to 269,000 (SAAR), after falling 3.2% in August. Given the monthly variability of multifamily starts, the three-month moving average provides a better picture of the state of multifamily activity. September’s three-month moving average of 235,000 was up 7.0% from August and its second highest level since November 2008. The average has exceeded 200,000 starts for eleven months in a row and September’s three-month moving average of multifamily building permits at 313,000 was at its highest level since August 2008.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Jul-12 Aug-12 Sep-12 Jul-12 Aug-12 Sep-12 Jan-11 to
Aug-11
Jan-12 to
Aug-12
Jan-11 to
Sep-11
Jan-12 to
Sep-12
     Northeast Starts 86 79 75 80 81 80 45 53 50 60
       Month-over-Month % Change 10.3% -8.1% -5.1% 2.6% 1.3% -1.2%        
       Year-over-year % Change of NSA data 1.3% 42.3% 28.8%       -7.1% 18.5% -7.9% 19.6%
     Midwest Starts 111 134 143 106 114 129 65 77 74 90
  13.3% 20.7% 6.7% -4.2% 8.2% 13.1%        
  24.2% 55.8% 38.9%       -4.9% 18.6% -3.4% 21.2%
     South Starts 348 376 451 360 363 392 205 259 234 300
  -4.9% 8.0% 19.9% -4.2% 1.0% 7.8%        
  15.5% 22.4% 38.8%       -3.6% 26.5% -1.9% 28.0%
     West Starts 183 169 203 184 188 185 87 114 101 133
  -13.7% -7.7% 20.1% 7.0% 2.2% -1.6%        
  39.4% 19.4% 24.7%       2.0% 31.8% 4.8% 30.8%
Total Starts (2) 728 758 872 729 747 786 401 504 460 583
  -3.4% 4.1% 15.0% -0.9% 2.4% 5.3%        
  20.1% 28.6% 34.4%       -3.1% 25.5% -1.5% 26.7%
     Single-family Starts 506 543 603 517 527 551 293 356 331 408
  -4.7% 7.3% 11.0% 0.1% 1.9% 4.6%        
  20.5% 26.6% 40.8%       -12.8% 21.3% -12.0% 23.5%
     Multifamily 222 215 269 213 220 235 108 148 129 174
  -0.4% -3.2% 25.1% -3.2% 3.4% 7.0%        
  19.3% 33.8% 23.3%       38.6% 36.9% 41.2% 34.6%
New Home Sales (3) 373 368 389 367 367 377 209 255 233 286
  3.6% -1.3% 5.7% 1.4% -0.1% 2.6%        
  25.9% 24.0% 29.2%       -9.5% 22.0% -9.0% 22.7%
Manufactured Home Shipments 51 57 NA 53 53 NA 32 38 37 NA
  -0.1% 12.9%   -2.1% 1.0%          
  14.8% 7.6%         -10.0% 17.2% -7.3%  

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
September’s housing numbers may be one of those blips upward that is the result of the normal statistical variation of the measure and also occurs in other economic numbers such as the employment statistics. Nonetheless, the clear trend for about a year has been an improving housing market. The outlook for housing remains positive due to a number of factors

The Reed Economics multifamily construction forecast is based on our expectation that interest rates will remain low, that vacancy rates will continue to fall (or at least not rise significantly), and that rents will rise further. The Reed single-family housing forecast is similarly positive based on improving economic growth and employment, the already noted historically low mortgage rates, and the Federal Reserve’s announced support for the mortgage market. However, it must be noted that single-family housing construction is advancing from an extremely low level of activity, which produces relatively large percentage increases.

Reed’s forecast is for new residential construction spending to move 17.1% higher in 2012, 17.3% higher in 2013, and 15.2% higher in 2014. Even with these strong increases, by the end of 2014 residential construction activity will remain below the most conservative estimates of the amount of home building necessary to meet the country’s long-term housing needs.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 79 95 111
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.3% 19.0% 17.5%
     Midwest Starts 97 98 101 120 145 156
  -28.0% 0.8% 3.1% 19.3% 20.4% 7.8%
     South Starts 278 298 308 388 421 476
  -38.6% 6.9% 3.5% 26.1% 8.3% 13.3%
     West Starts 117 120 133 174 233 298
  -40.5% 2.7% 10.5% 31.1% 34.0% 28.0%
Total Starts (1) 554 587 609 762 893 1042
  -38.8% 5.9% 3.7% 25.1% 17.2% 16.7%
     Single-family Starts 445 471 431 532 624 722
  -61.6% 6.2% 54.0% 29.3% 16.9% 18.6%
     Multifamily Starts 109 116 178 230 269 319
  -28.4% 5.9% -8.6% 23.4% 17.3% 15.8%
New Home Sales (2) 375 323 306 366 420 513
  -22.7% -13.9% -5.3% 19.7% 14.7% 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 105.3 112.6 108.2 125.8 146.1 168.6
  -43.3% 6.9% -3.9% 16.3% 16.1% 15.4%
New Multifamily (3) 35.9 24.1 22.6 27.4 33.7 38.5
  -30.0% -32.9% -6.0% 20.9% 23.2% 14.1%
New Residential (4) 141.2 136.7 130.8 153.2 179.8 207.0
  -40.4% -3.2% -4.3% 17.1% 17.3% 15.2%
Residential Improvements (5) 112.7 112.5 114.9 119.8 124.9 133.6
  -6.6% -0.2% 2.2% 4.3% 4.3% 7.0%
Total Residential (6) 253.9 249.1 245.7 273.0 304.7 340.7
  -29.0% -1.9% -1.4% 11.1% 11.6% 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.

Read more forecasts from Reed Construction Data:

Construction Spending Slips Further in August
Nonresidential Building Construction Hits an Air Pocket in August
Heavy Engineering Construction Spending Tumbles for the Third Month in a Row