New Residential Construction Spending Chugs Higher in January

03/27/2013 by Bernard M. Markstein

New residential construction spending rose 3.2% on a seasonally adjusted (SA) basis in January after advancing 1.4% in December. January was the tenth consecutive monthly increase and the 15th increase over the past 16 months. January not seasonally adjusted (NSA) spending was 31.7% higher than in January 2012. New single-family construction spending increased 3.6% in January, up significantly from December’s 0.6% increase. New multifamily construction spending was up a respectable 1.2% in January, but that was slower than the 5.4% jump in December. For January, on a year-over-year, NSA basis, single-family construction spending was up 30.5% and multifamily spending was up 37.4%.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average
  Nov-12 Dec-12 Jan-13 Nov-12 Dec-12 Jan-13
New Single-family 144.5 145.3 150.5 140.8 143.8 146.7
  Month-over-Month % Change 2.1% 0.6% 3.6% 3.1% 2.1% 2.1%
  (Year-over-year % change of NSA data) 30.7% 28.8% 30.5%      
New Multifamily (2) 30.4 32.1 32.5 29.5 30.7 31.6
  2.8% 5.4% 1.2% 2.7% 4.1% 3.1%
  31.1% 36.7% 37.4%      
New Residential (3) 174.9 177.3 183.0 170.3 174.4 178.4
  2.2% 1.4% 3.2%      
  30.8% 30.3% 31.7%      
Residential Improvements (4) 131.3 134.0 128.2 132.8 133.5 131.2
  -2.8% 2.0% -4.3% 0.6% 0.5% -1.7%
  9.2% 12.8% 9.7%      
Total Residential (5) 306.2 311.3 311.2 303.1 307.9 309.6
  0.0% 1.7% 0.0% 2.0% 1.6% 0.5%
  20.9% 22.3% 22.2%      

(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
Single-family housing starts advanced 0.5% to 618,000 at a seasonally adjusted annual rate (SAAR) in February, their highest level since June 2008, after rising 1.2% in January. Year-to-date (January and February) single-family starts were up 24.0% from the same period last year.

The inventory of single-family homes for sale remains near historic lows. Based on January’s home sales rate, the 150,000 new homes for sale represented a 4.1 month supply, well below the roughly 6 months’ supply that has been the historical average. The single-family existing house market is similarly tight with a 4.6 months’ supply of homes for sale as of February. With demand increasing and limited supply, home prices are rising in many markets. This also indicates that single-family construction can increase appreciably without creating a new bubble.

Single-family building permits increased 2.7% to 600,000 in February, their highest level since June 2008, from 584,000 in January. The one negative note for housing comes from the March NAHB/Wells Fargo Housing Market Index (HMI), which fell for the second month in a row, down to 44 from February’s 46. According to National Association of Home Builders (NAHB) Chairman Rick Judson, the decline in confidence despite increasing demand appears to be due to “frustrating bottlenecks in the supply chain for developed lots along with rising costs for building materials and labor. At the same time, problems with appraisals and credit availability remain considerable obstacles to completing deals.”

Residential construction building materials prices have been rising rapidly of late. In particular, prices for gypsum, softwood lumber, and oriented strand board (OSB), all major components of single-family housing construction, have been increasing rapidly in recent months. Prices for all of these items were up at double digit rates from a year ago as of February of this year, with OSB up an astronomical 70%.

Multifamily Housing
Multifamily starts rose 1.4% to 299,000 (SAAR) in February, after plunging 19.2% in January. Since large swings in the monthly multifamily starts number is typical, the three-month moving average is used to smooth out some of the monthly variability to gain a better understanding of the shape of multifamily construction. The three-month moving average for February increased 3.0% from January to 320,000, the highest average since July 2008. The three-month moving average for multifamily building permits was up 1.4% to 334,000, 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)
  Dec-12 Jan-13 Feb-13 Dec-12 Jan-13 Feb-13 Jan-12 to
Jan-12
Jan-13 to
Jan-13
Jan-12 to
Feb-12
Jan-13 to
Feb-13
     Northeast Starts 116 87 103 87 90 102 5 6 8 12
       Month-over-Month
       % Change
70.6% -25.0% 18.4% 17.5% 3.4% 12.9%        
       Year-over-year
       % Change of NSA data
90.5% 19.6% 63.2%       -20.7% 19.6% -5.6% 39.3%
     Midwest Starts 190 96 132 167 147 139 5 4 10 11
  23.4% -49.5% 37.5% 9.4% -12.0% -5.0%        
  15.5% -20.8% 44.0%       -5.4% -20.8% 18.4% 10.7%
     South Starts 464 491 463 451 469 473 28 34 59 68
  2.9% 5.8% -5.7% 3.5% 3.9% 0.9%        
  45.5% 20.8% 8.0%       34.0% 20.8% 35.2% 14.1%
     West Starts 203 236 219 196 202 219 9 16 19 31
  20.8% 16.3% -7.2% 0.3% 3.2% 8.4%        
  63.3% 74.4% 57.1%       18.4% 74.4% 33.3% 65.4%
Total Starts (2) 973 910 917 901 908 933 47 60 97 122
  15.7% -6.5% 0.8% 5.1% 0.8% 2.8%        
  46.4% 26.5% 25.6%       17.4% 26.5% 28.2% 26.0%
     Single-family Starts 608 615 618 589 598 614 33 39 65 81
  6.7% 1.2% 0.5% 1.0% 1.5% 2.7%        
  21.0% 19.0% 29.2%       24.4% 19.0% 22.7% 24.0%
     Multifamily 365 295 299 312 310 320 14 20 32 41
  34.7% -19.2% 1.4% 13.6% -0.5% 3.0%        
  113.7% 44.0% 18.9%       3.7% 44.0% 41.1% 30.1%
New Home Sales (3) 378 437 NA 378 403 NA 23 31 53 NA
  -3.8% 15.6%   -0.1% 6.4%          
  12.5% 34.8%         9.5% 34.8% 23.3%  
Manufactured Home
Shipments
53 67 NA 55 59 NA 4 4 8 NA
  -5.2% 26.8%   3.8% 7.3%          
  -8.4% 6.5%         42.5% 6.5% 42.9%  

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 strengthen. Housing prices are on the upswing in more parts of the country. The December 10-city and 20-city S&P/Case-Shiller® Home Price Index increased 5.9% and 6.8%, respectively, from December 2011. Rising prices are lifting more homeowners’ mortgages above water, reducing the number of potential foreclosures. They also increase the willingness of prospective homebuyers to purchase a new or existing home. Higher home prices provide lenders with a more solid basis on which to issue mortgages and to extend credit to homebuilders.

Meanwhile, interest rates on mortgages remain near their historic lows. Further, Federal Reserve Chairman Ben Bernanke has said that the Fed will continue with asset purchases that will keep mortgage interest rates low in the near term. We believe that rates will remain low through the end of this year and very likely through the end of next year. Thus the outlook for both single-family and multifamily construction remains excellent. Increased residential construction activity helps lift general economic activity.

New residential construction spending is forecasted to increase 26.4% this year and to increase 16.3% in 2014.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 80 101 118
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.7% 27.0% 16.5%
     Midwest Starts 97 98 101 128 143 158
  -28.0% 0.8% 3.1% 26.8% 11.8% 10.7%
     South Starts 278 298 308 398 500 558
  -38.6% 6.9% 3.5% 29.2% 25.8% 11.6%
     West Starts 117 120 133 175 250 315
  -40.5% 2.7% 10.5% 32.2% 42.6% 26.1%
Total Starts (1) 554 587 609 781 994 1,150
  -38.8% 5.9% 3.7% 28.2% 27.4% 15.6%
     Single-family Starts 445 471 431 535 669 777
  -28.4% 5.9% -8.6% 24.3% 25.0% 16.1%
     Multifamily Starts 109 116 178 245 325 373
  -61.6% 6.2% 54.0% 37.7% 32.6% 14.6%
New Home Sales (2) (7) 375 323 306 367 422 515
  -22.7% -13.9% -5.3% 19.9% 15.0% 21.9%
Manufactured Home Shipments (7) 50 50 52 55 62 70
  -39.2% 0.5% 3.1% 6.3% 12.5% 13.4%
     Residential Construction Spending (Billions of Current Dollars) (7)  
New Single-family 105.3 112.6 108.2 129.2 163.2 190.6
  -43.3% 6.9% -3.9% 19.4% 26.3% 16.8%
New Multifamily (3) 35.9 24.1 22.6 27.3 34.7 39.6
  -30.0% -32.9% -6.0% 20.5% 27.2% 14.1%
New Residential (4) 141.2 136.7 130.8 156.5 197.8 230.1
  -40.4% -3.2% -4.3% 19.6% 26.4% 16.3%
Residential Improvements (5) 112.7 112.5 114.9 126.3 135.3 146.5
  -6.6% -0.2% 2.2% 9.9% 7.1% 8.3%
Total Residential (6) 253.9 249.1 245.7 282.8 333.1 376.6
  -29.0% -1.9% -1.4% 15.1% 17.8% 13.1%

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.
(7) New Home Sales, Manufactured Home Shipments, and Residential construction spending numbers for 2012 are estimates based on 11 months of data.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

Read more forecasts from Reed Construction Data:

Construction Spending Stumbles at the Beginning of 2013
Nonresidential Building Construction Spending Drops in January
Heavy Engineering Construction Craters in January