New residential construction spending declined 1.0% on a seasonally adjusted (SA) basis, the first decline in five months and only the second in nine months, after rising 2.1% in January. Single-family construction spending fell 1.5%, its first decline in nine months, following a 2.2% increase in January. However, multifamily construction spending rose for the second month in a row, up 1.2% after advancing 1.7% in January.
Single-Family Housing
Single-family housing starts, after spiking above 500,000 at a seasonally adjusted annual rate (SAAR) in December (505,000) and January (509,000), fell to just above the 460,000 level in February (463,000) and March (462,000). Unseasonably warm weather in much of the country during the months of December through March probably pulled some housing starts forward as builders took advantage of the favorable weather, pushing the reported starts numbers higher. The seasonal adjustment process may have further inflated the numbers, particularly for December and January. This effect should now be reversing itself. The March numbers would have a smaller upward bias, as would the yet to be reported April numbers. However, we may have to wait for the May and June starts numbers to get a better reading on new construction activity.
If the roughly 460,000 single-family starts for February and March or a little lower are a reasonable approximation of the market, then single-family starts have moved above their 2011 lows (single-family starts were 431,000 for the year), returning them to a level last seen about two years ago. One indication that construction activity is inching up, if ever so slowly, is that the three-month moving average for single-family building permits has increased in each of the past eleven months. Further, March’s three-month moving average of 464,000 permits marked their highest level since May 2010.
One indication of caution comes from the April NAHB/Wells Fargo Housing Market Index (HMI), which fell to 25 from March’s 28. Although above its low of 13 last year and its all time low of 8 in January 2009, the decline is of concern for the near-term outlook. All three underlying indexes that make up the HMI (indexes for current sales, current traffic, and expected sales) decreased.
Multifamily Housing
A 16.9% drop in multifamily starts to 192,000 SAAR in March from February’s 231,000 starts accounted for virtually the entire drop in total starts for the month. However, since multifamily starts are a volatile measure, the three-month moving average provides a more useful picture of what has been happening in that market. March’s three-month moving average of 209,000 is the second highest average since November 2008. Further, March’s three-month moving average of multifamily building permits at 251,000 is their highest reading since October 2008.
Outlook for Residential Construction
The housing market continues to face serious, headwinds. Bank foreclosures are now occurring in waves—a batch of foreclosures, digestion of those foreclosures, another batch of foreclosures. However, the number of foreclosures should be winding down by the end of this year. Also, more lenders now recognize the benefit of negotiating with a borrower in default, working out a reduction in principle or agreeing to a short sale rather than pursuing a foreclosure. It remains to be seen if the latest administration policy initiatives to help distressed homeowners will have much impact (previous programs fell well short of their goals).
Meanwhile, single-family builders must compete with the downward price pressure from the sale of foreclosed properties and short sales in several markets. However, housing prices in many metro markets have stabilized where foreclosures are no longer (or never were) a major problem. Banks and other lenders have been easing their lending standards a bit for builders and buyers, though hardly to the standards that observers would characterize as normal (i.e., the type of standards that prevailed before the housing bubble).
Overall the outlook for multifamily construction spending remains positive. Continued low interest rates, falling vacancy rates, and rising rents underlie our forecast for multifamily construction. The forecast for single-family construction is for continued anemic recovery. The improving economy, stronger hiring, low mortgage rates, and rising consumer confidence are all positives for housing and residential construction.
The forecast of 2012 single-family housing starts has been reduced a small amount. However, along with a downward revision of spending data for December and January, this was sufficient to reduce our 2012 single-family construction spending forecast from last month’s increase of 9.5% to this month’s 7.3%. That, in turn, pulled down the 2012 new residential construction spending growth forecast from 9.1% to 7.5%. Barring a new U.S. recession, most of the risk for single-family construction is on the upside given pent up demand for housing. The most important factors that would lead to faster growth in the housing market are greater than expected employment growth, general consumers’ perception that housing prices are stable to rising, and further easing of mortgage lending standards by financial institutions.
Residential Construction Data |
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| Monthly Figures (1) (latest actual values) |
3-Month Moving Average |
Actual | Forecast | |||||||||
| Jan-12 | Feb-12 | Mar-12 | Jan-12 | Feb-12 | Mar-12 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Northeast Starts | 73 | 67 | 89 | 77 | 67 | 76 | 121 | 62 | 72 | 68 | 79 | 91 |
| Month-over-Month % Change | 17.7% | -8.2% | 32.8% | 4.1% | -12.6% | 13.4% | ||||||
| (Year-over-year % change of NSA data) | -20.7% | 22.6% | 42.0% | -15.3% | -48.9% | 15.9% | -5.3% | 17.0% | 14.1% | |||
| Midwest Starts | 103 | 101 | 102 | 122 | 124 | 102 | 135 | 97 | 98 | 101 | 107 | 122 |
| -38.3% | -1.9% | 1.0% | -1.9% | 1.4% | -17.5% | |||||||
| -5.4% | 64.5% | 27.1% | -35.8% | -28.0% | 0.8% | 3.3% | 5.3% | 14.6% | ||||
| South Starts | 400 | 397 | 334 | 357 | 375 | 377 | 453 | 278 | 298 | 308 | 387 | 431 |
| 22.3% | -0.7% | -15.9% | 7.9% | 5.0% | 0.6% | |||||||
| 34.0% | 30.3% | -1.0% | -33.4% | -38.6% | 6.9% | 3.4% | 25.7% | 11.3% | ||||
| West Starts | 138 | 129 | 129 | 143 | 131 | 132 | 196 | 117 | 120 | 133 | 141 | 183 |
| 10.4% | -6.5% | 0.0% | 1.4% | -8.8% | 1.0% | |||||||
| 18.4% | 43.1% | 12.2% | -38.9% | -40.5% | 2.7% | 10.5% | 6.0% | 30.1% | ||||
| Total Starts (2) | 714 | 694 | 654 | 699 | 696 | 687 | 906 | 554 | 587 | 609 | 713 | 826 |
| 4.8% | -2.8% | -5.8% | 4.3% | -0.4% | -1.3% | |||||||
| 17.4% | 35.3% | 9.2% | -33.2% | -38.8% | 5.9% | 3.8% | 17.1% | 15.8% | ||||
| Total Single-family Starts | 509 | 463 | 462 | 491 | 492 | 478 | 622 | 445 | 471 | 431 | 496 | 566 |
| 0.8% | -9.0% | -0.2% | 5.1% | 0.3% | -2.9% | |||||||
| 24.4% | 20.7% | 8.5% | -40.5% | -28.4% | 5.9% | -8.6% | 15.0% | 14.1% | ||||
| Total Multifamily Starts | 205 | 231 | 192 | 208 | 204 | 209 | 284 | 109 | 116 | 178 | 217 | 260 |
| 16.5% | 12.7% | -16.9% | 2.3% | -2.1% | 2.6% | |||||||
| 3.7% | 79.5% | 11.0% | -8.3% | -61.6% | 6.2% | 54.1% | 21.9% | 19.6% | ||||
| New Home Sales (3) | 329 | 353 | 328 | 331 | 341 | 337 | 485 | 375 | 323 | 302 | 322 | 356 |
| -3.5% | 7.3% | -7.1% | 1.8% | 3.1% | -1.3% | |||||||
| 9.5% | 27.3% | 14.3% | -37.5% | -22.7% | -13.9% | -6.5% | 6.7% | 10.6% | ||||
| Manufactured Home Shipments | 61 | 62 | NA | 62 | 60 | NA | 82 | 50 | 50 | 52 | 66 | 77 |
| 9.5% | 1.7% | 2.8% | -3.6% | |||||||||
| 42.5% | 43.3% | -14.5% | -39.3% | 0.7% | 3.1% | 27.9% | 16.3% | |||||
| Residential Construction Spending (Billions Current $) | ||||||||||||
| New Single-family | 113.2 | 111.5 | NA | 110.9 | 111.8 | NA | 185.8 | 105.3 | 112.6 | 106.7 | 114.5 | 122.7 |
| 2.2% | -1.5% | 1.8% | 0.8% | |||||||||
| 5.8% | 8.9% | -39.1% | -43.3% | 6.9% | -5.2% | 7.3% | 7.1% | |||||
| New Multifamily* | 23.2 | 23.5 | NA | 23.0 | 23.2 | NA | 51.2 | 35.9 | 23.7 | 22.1 | 24.1 | 27.1 |
| 1.7% | 1.2% | 1.6% | 0.8% | |||||||||
| 5.4% | 10.1% | -8.1% | -30.0% | -34.0% | -6.6% | 8.7% | 12.5% | |||||
| New Residential** | 136.5 | 135.0 | NA | 133.9 | 135.0 | NA | 237.0 | 141.2 | 136.2 | 128.9 | 138.5 | 149.7 |
| 2.1% | -1.0% | 1.7% | 0.8% | |||||||||
| 5.7% | 9.1% | -34.3% | -40.4% | -3.5% | -5.4% | 7.5% | 8.1% | |||||
| Residential Improvements*** | 117.0 | 118.4 | NA | 119.5 | 118.5 | NA | 120.7 | 112.7 | 112.5 | 116.6 | 119.7 | 124.8 |
| -2.6% | 1.2% | -0.3% | -0.8% | |||||||||
| -1.0% | 5.0% | -13.5% | -6.6% | -0.2% | 3.7% | 2.6% | 4.2% | |||||
| Total Residential**** | 253.5 | 253.5 | NA | 253.4 | 253.5 | NA | 357.7 | 253.9 | 248.7 | 245.5 | 258.3 | 274.5 |
| -0.1% | 0.0% | 0.8% | 0.1% | |||||||||
| 2.7% | 7.3% | -28.5% | -29.0% | -2.1% | -1.3% | 5.2% | 6.3% | |||||
Housing starts, home sales, and manufactured home shipments are all in thousands. |
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