New residential construction spending rose 1.7% on a seasonally adjusted (SA) basis after jumping 3.2% in March. Single-family construction spending increased 1.8% following a 4.2% surge in March. Multifamily construction spending was up 1.2% after falling 1.6% in March. On a year-to-date basis, both single-family and multifamily construction spending were up from last year, 9.8% and 9.3%, respectively.
Single-Family Housing
The Census Bureau’s report on May housing starts was generally positive despite a 4.8% (SA) drop in total housing starts. May single-family housing starts advanced 3.2% to 516,000 at a seasonally adjusted annual rate (SAAR) and April single-family starts were revised up to 500,000 from 492,000. Single-family starts have been at or above 460,000 for the past seven months and at or above 500,000 for four of the last six months. Meanwhile, May single-family building permits were up 4.0% to 494,000, their highest level since March 2010.
Another positive indicator for the single-family housing market comes from the June NAHB/Wells Fargo Housing Market Index (HMI), which inched up a point to 29, after jumping four points in May. The June HMI is its highest reading since May 2007.
Multifamily Housing
May multifamily starts fell 21.3% to 192,000 (SAAR). However, April’s starts number was revised up from 225,000 to 244,000. More instructive given multifamily starts’ volatility, May’s three-month moving average of 218,000 was down a more modest 7.9% from April. On the positive side, May’s three-month moving average of multifamily building permits at 279,000 was up 7.3% from April and was their highest reading since October 2008.
Outlook for Residential Construction
The housing market continues to face serious, though diminishing challenges. The number of foreclosures is on a slow downward trajectory. The number of delinquent mortgages is falling, indicating the inflow of new foreclosures is decreasing. More lenders now recognize the benefit of negotiating with a borrower either prior to default or in default, working out a reduction in principal or agreeing to a short sale rather than pursuing a foreclosure.
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. Most of the premium foreclosed properties that were available for sale in the early days of the foreclosure crisis are long gone. At this point, most foreclosures available for sale are more modest homes and/or in poor condition. Banks and other lenders have been easing their lending standards a bit for builders and buyers, though hardly to the standards that analysts 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 (first quarter vacancy rate of 8.8% was the lowest rental vacancy rate since second quarter 2002), and rising rents underlie our forecast for multifamily construction. The forecast for single-family construction is for continued anemic recovery. The growing economy, continued hiring, low mortgage rates, and slightly easier mortgage lending standards are all positives for housing and residential construction.
The forecast is for new residential construction spending to increase 13.6% in 2012 and 12.0% in 2013. This forecast is up from last month’s 10.2% and 8.2%, respectively, due to a more positive outlook for housing, especially for single-family construction. This improved outlook was influenced by better than expected April construction spending numbers and some upward revision in the February and March numbers. However, note that relatively small changes in spending produce large changes in percentage increases due to the low base. Although improving, the nation is still far from a return to a fully normal housing market.
Residential Construction Data |
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| Monthly Figures (1) (latest actual values) |
3-Month Moving Average |
Actual | Forecast | |||||||||
| Mar-12 | Apr-12 | May-12 | Mar-12 | Apr-12 | May-12 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | |
| Northeast Starts | 87 | 79 | 63 | 76 | 77 | 76 | 121 | 62 | 72 | 68 | 78 | 91 |
| Month-over-Month % Change | 31.8% | -9.2% | -20.3% | 12.4% | 2.2% | -1.3% | ||||||
| (Year-over-year % change of NSA data) | 38.0% | 32.7% | 12.5% | -15.3% | -48.9% | 15.9% | -5.3% | 14.6% | 16.5% | |||
| Midwest Starts | 119 | 128 | 111 | 108 | 115 | 119 | 135 | 97 | 98 | 101 | 118 | 134 |
| 20.2% | 7.6% | -13.3% | -15.4% | 6.8% | 3.5% | |||||||
| 48.5% | 39.8% | 9.3% | -35.8% | -28.0% | 0.8% | 3.3% | 16.5% | 13.8% | ||||
| South Starts | 345 | 391 | 367 | 389 | 385 | 368 | 453 | 278 | 298 | 308 | 396 | 437 |
| -17.7% | 13.3% | -6.1% | 1.5% | -1.0% | -4.5% | |||||||
| 0.7% | 39.4% | 37.1% | -33.4% | -38.6% | 6.9% | 3.4% | 28.7% | 10.2% | ||||
| West Starts | 148 | 146 | 167 | 140 | 143 | 154 | 196 | 117 | 120 | 133 | 151 | 193 |
| 10.4% | -1.4% | 14.4% | 4.7% | 2.1% | 7.7% | |||||||
| 27.6% | 25.5% | 26.0% | -38.9% | -40.5% | 2.7% | 10.5% | 13.9% | 27.7% | ||||
| Total Starts (2) | 699 | 744 | 708 | 712 | 720 | 717 | 906 | 554 | 587 | 609 | 742 | 854 |
| -2.6% | 6.4% | -4.8% | 0.1% | 1.1% | -0.5% | |||||||
| 15.0% | 35.9% | 26.5% | -33.2% | -38.8% | 5.9% | 3.8% | 21.9% | 15.0% | ||||
| Total Single-family Starts | 481 | 500 | 516 | 487 | 484 | 499 | 622 | 445 | 471 | 431 | 513 | 588 |
| 2.3% | 4.0% | 3.2% | -2.6% | -0.8% | 3.2% | |||||||
| 10.7% | 23.3% | 23.7% | -40.5% | -28.4% | 5.9% | -8.6% | 19.1% | 14.4% | ||||
| Total Multifamily Starts | 218 | 244 | 192 | 225 | 237 | 218 | 284 | 109 | 116 | 178 | 229 | 266 |
| -12.1% | 11.9% | -21.3% | 6.5% | 5.2% | -7.9% | |||||||
| 26.5% | 77.9% | 35.1% | -8.3% | -61.6% | 6.2% | 54.1% | 28.4% | 16.3% | ||||
| New Home Sales (3) | 332 | 343 | NA | 343 | 344 | NA | 485 | 375 | 323 | 302 | 352 | 405 |
| -7.3% | 3.3% | -0.7% | 0.4% | |||||||||
| 14.3% | 10.0% | -37.5% | -22.7% | -13.9% | -6.5% | 16.6% | 15.1% | |||||
| Manufactured Home Shipments | 58 | 52 | NA | 60 | 58 | NA | 82 | 50 | 50 | 52 | 63 | 73 |
| -7.2% | -9.2% | 1.1% | -4.8% | |||||||||
| 15.8% | 17.4% | -14.5% | -39.3% | 0.7% | 3.1% | 21.3% | 16.2% | |||||
| Residential Construction Spending (Billions Current $) | ||||||||||||
| New Single-family | 117.4 | 119.4 | NA | 114.7 | 116.5 | NA | 185.8 | 105.3 | 112.6 | 106.7 | 122.2 | 136.7 |
| 4.2% | 1.8% | 2.0% | 1.5% | |||||||||
| 10.5% | 13.0% | -39.1% | -43.3% | 6.9% | -5.2% | 14.5% | 11.9% | |||||
| New Multifamily* | 23.3 | 23.6 | NA | 23.4 | 23.5 | NA | 51.2 | 35.9 | 23.7 | 22.1 | 24.2 | 27.2 |
| -1.6% | 1.2% | 0.7% | 0.8% | |||||||||
| 10.4% | 9.8% | -8.1% | -30.0% | -34.0% | -6.6% | 9.3% | 12.5% | |||||
| New Residential** | 140.7 | 143.0 | NA | 138.0 | 140.0 | NA | 237.0 | 141.2 | 136.2 | 128.9 | 146.4 | 163.9 |
| 3.2% | 1.7% | 1.7% | 1.4% | |||||||||
| 10.5% | 12.4% | -34.3% | -40.4% | -3.5% | -5.4% | 13.6% | 12.0% | |||||
| Residential Improvements*** | 115.1 | 119.3 | NA | 117.2 | 117.6 | NA | 120.7 | 112.7 | 112.5 | 116.6 | 119.6 | 125.0 |
| -2.9% | 3.6% | -1.4% | 0.4% | |||||||||
| 3.7% | -2.1% | -13.5% | -6.6% | -0.2% | 3.7% | 2.6% | 4.5% | |||||
| Total Residential**** | 255.8 | 262.3 | NA | 255.2 | 257.7 | NA | 357.7 | 253.9 | 248.7 | 245.5 | 266.0 | 288.8 |
| 0.4% | 2.6% | 0.3% | 0.9% | |||||||||
| 7.5% | 5.1% | -28.5% | -29.0% | -2.1% | -1.3% | 8.3% | 8.6% | |||||
Housing starts, home sales, and manufactured home shipments are all in thousands. |
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Read more forecasts from Reed Construction Data:
Construction Spending up in April Thanks to Residential Construction
Nonresidential Building Construction Down in April
Heavy Engineering (Non-Building) Construction Spending Falls in April
