New Residential Construction Spending Continues Upward

08/21/2012 by Bernard M. Markstein

New residential construction spending surged 3.0% on a seasonally adjusted (SA) basis in June after rising an almost as strong 2.7% in May. Single-family construction spending jumped 3.0% following a 2.2% increase in May. Multifamily construction spending advanced 2.8% in June after rocketing 5.1% higher the previous month. On a year-to-date basis, single-family and multifamily construction spending were up 12.4% and 14.8%, respectively, from last year.

Residential Construction Spending Data
(billions of U.S. current dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Apr-12 May-12 Jun-12 Apr-12 May-12 Jun-12 Jan-10 to
Jun-11
Jan-11 to
Jun-12
New Single-family 119.6 122.2 125.9 118.4 119.8 122.5 49.7 55.8
  Month-over-Month % Change 1.6% 2.2% 3.0% 1.1% 1.2% 2.3%    
  (Year-over-year % change of NSA data) 11.7% 14.9% 18.3%       -9.0% 12.4%
New Multifamily (2) 25.5 26.8 27.5 24.5 25.4 26.6 10.8 12.4
  5.9% 5.1% 2.8% 2.3% 3.7% 4.5%    
  15.1% 23.3% 20.2%       -8.0% 14.8%
New Residential (3) 145.0 148.9 153.4 142.9 145.2 149.1 60.5 68.2
  2.3% 2.7% 3.0%          
  12.3% 16.3% 18.6%       -8.8% 12.8%
Residential Improvements (4) 115.6 119.6 118.7 115.9 116.5 118.0 54.0 54.1
  1.1% 3.5% -0.8% -0.6% 0.5% 1.2%    
  -0.8% -6.0% 1.2%       2.1% 0.2%
Total Residential (5) 260.6 268.5 272.1 258.8 261.8 267.1 114.5 122.3
  1.7% 3.0% 1.3% 0.5% 1.1% 2.0%    
  5.9% 4.9% 10.1%       -4.0% 6.9%

(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 July total housing starts fell 1.1% (SA) after increasing 6.8% in June. The decline was due to single-family housing starts falling 6.5% to 502,000 at a seasonally adjusted annual rate (SAAR) from June’s 537,000. Despite the July reversal, the first decline in five months, single-family starts have been at or above 460,000 for the past nine months and above 500,000 for six of the last eight months.

Positive news comes from July’s single-family building permits, which jumped 4.5% to 513,000, their highest level since March 2010. Another positive indicator for the single-family housing market comes from the August NAHB/Wells Fargo Housing Market Index (HMI), which rose a healthy 2 points to 37, after spurting up 6 points in July. The August HMI is its highest reading since February 2007. Increases in the HMI typically precede increases in housing starts by one to two months.

Multifamily Housing
July multifamily starts surged 12.4% for the second month in a row to 244,000 (SAAR), which partially offset the decline in single-family starts. More instructive given multifamily starts’ volatility, July’s three-month moving average of 218,000 was essentially unchanged from June. The moving average has now been above 200,000 starts for nine straight months. Meanwhile, July’s three-month moving average of multifamily building permits at 287,000 was its highest reading since September 2008.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  May-12 Jun-12 Jul-12 May-12 Jun-12 Jul-12 Jan-10 to
Jun-11
Jan-11 to
Jun-12
Jan-10 to
Jul-11
Jan-11 to
Jul-12
     Northeast Starts 76 78 77 81 78 77 32 38 40 45
       Month-over-Month % Change -5.0% 2.6% -1.3% 4.3% -3.7% -1.3%        
       Year-over-year % Change of NSA data 32.1% 13.0% -8.7%       -7.3% 19.3% -4.1% 13.6%
     Midwest Starts 108 100 117 116 111 108 47 52 56 64
  -13.6% -7.4% 17.0% 2.6% -4.6% -2.4%        
  5.6% -18.9% 35.2%       -1.5% 11.1% -1.6% 15.0%
     South Starts 365 368 355 371 376 363 150 194 178 227
  -7.6% 0.8% -3.5% -4.6% 1.3% -3.5%        
  36.3% 31.6% 18.4%       -7.7% 29.4% -5.1% 27.7%
     West Starts 157 208 197 151 171 187 61 80 73 99
  6.8% 32.5% -5.3% 5.3% 13.0% 9.8%        
  18.3% 54.6% 52.0%       -1.8% 32.3% 1.9% 35.7%
Total Starts (2) 706 754 746 720 736 735 289 364 347 436
  -5.5% 6.8% -1.1% -0.6% 2.2% 0.0%        
  25.6% 23.5% 24.5%       -5.6% 26.0% -3.1% 25.8%
     Single-family Starts 513 537 502 499 518 517 213 257 254 307
  1.8% 4.7% -6.5% 3.0% 3.7% -0.1%        
  22.5% 23.0% 20.7%       -17.0% 20.9% -14.6% 20.8%
     Multifamily 193 217 244 220 218 218 76 107 93 129
  -20.6% 12.4% 12.4% -7.7% -1.2% 0.2%        
  35.1% 24.8% 33.7%       52.8% 40.5% 53.0% 39.3%
New Home Sales (3) 382 350 NA 364 363 NA 157 190 NA NA
  6.7% -8.4%   1.5% -0.2%          
  28.6% 17.9%         -13.7% 21.0%    
Manufactured Home Shipments 56 51 NA 56 54 NA 23152 27715 NA NA
  3.1% -8.9%   -4.0% -3.7%          
  16.7% 1.1%         -12.3% 19.7%    

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 appears to be on solid footing, with a clear, if languid, upward trend despite some normal monthly fluctuations. The foreclosure problem is slowly abating. 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.

Modestly rising prices for single-family homes in a number of metro markets is giving both prospective home buyers and lenders more confidence. Overly conservative appraisals remain a significant hurdle to housing’s recovery, but even here there has been some movement in the right direction.

Overall the outlook for multifamily construction spending remains positive. Continued low interest rates, falling vacancy rates (second quarter SA rental vacancy rate fell to 8.6% from first quarter’s 8.9% and is the lowest vacancy rate since second quarter 2002), and rising rents underlie our forecast for multifamily construction. The forecast for single-family construction is for continued recovery from its current anemic level. The growing economy, continued hiring, low mortgage rates, and slightly easier mortgage lending standards are all positives for housing and residential construction.

At this point, employment growth is the most important factor that will drive the housing market. If the recent rebound in hiring persists, the housing recovery will continue and pick up speed. Our forecast is based on the assumption that economic growth and employment will improve over the next several months.

The forecast is for new residential construction spending to increase 15.7% in 2012 and 15.8% in 2013. Note that these increases are from a low base. Based on demographics, multifamily housing starts are roughly a third below the economy’s long-term needs and single-family starts are less than half its desired level. Clearly, although improving, the nation is still far from a return to a fully normal housing market.

Residential Construction Data

  Actual Forecast
  2008 2009 2010 2011 2012 2013
     Northeast Starts 121 62 72 68 79 91
       (Year-over-year % change of NSA data) -15.3% -48.9% 15.9% -5.4% 16.6% 14.7%
     Midwest Starts 135 97 98 101 115 131
  -35.8% -28.0% 0.8% 3.1% 13.7% 14.2%
     South Starts 453 278 298 308 383 415
  -33.4% -38.6% 6.9% 3.5% 24.5% 8.2%
     West Starts 196 117 120 133 176 237
  -38.9% -40.5% 2.7% 10.5% 33.0% 34.4%
Total Starts (1) 906 554 587 609 753 873
  -33.2% -38.8% 5.9% 3.7% 23.7% 15.9%
     Single-family Starts 622 445 471 431 523 604
  -8.3% -61.6% 6.2% 54.0% 29.1% 17.1%
     Multifamily Starts 284 109 116 178 230 269
  -40.5% -28.4% 5.9% -8.6% 21.5% 15.4%
New Home Sales (2) 485 375 323 306 366 420
  -37.5% -22.7% -13.9% -5.3% 19.7% 14.6%
Manufactured Home Shipments 82 50 50 52 59 69
  -14.4% -39.2% 0.5% 3.1% 14.6% 16.2%
     Residential Construction Spending (Billions Current $)    
New Single-family 185.8 105.3 112.6 108.2 124.0 141.9
  -39.1% -43.3% 6.9% -3.9% 14.6% 14.4%
New Multifamily (3) 51.2 35.9 24.1 22.6 27.3 33.3
  -8.1% -30.0% -32.9% -6.0% 20.7% 21.9%
New Residential (4) 237.0 141.2 136.7 130.8 151.3 175.1
  -34.3% -40.4% -3.2% -4.3% 15.7% 15.8%
Residential Improvements (5) 120.7 112.7 112.5 114.9 118.7 123.9
  -13.5% -6.6% -0.2% 2.2% 3.3% 4.4%
Total Residential (6) 357.7 253.9 249.1 245.7 270.0 299.1
  -28.5% -29.0% -1.9% -1.4% 9.9% 10.8%

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 Up for Third Consecutive Month
Nonresidential Building Construction Rises for the Second Month in a Row
Heavy Engineering Construction Stumbles in June