New Residential Construction Spending Grows at a Slower Pace in March

05/28/2013 by Bernard M. Markstein

New residential construction spending advanced 1.7% on a seasonally adjusted (SA) basis in March following a 4.0% surge in February. As of March spending has increased for twelve consecutive months. Year-to-date not seasonally adjusted (NSA) spending was up 36.1% from the same period in 2012. New single-family construction spending rose 1.6% in March after jumping 5.4% in February. New multifamily construction spending rebounded 2.5% in March after falling 2.1% in February. On a year-to-date NSA basis, single-family construction spending was up 35.4%, and multifamily spending was up 39.5%.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Jan-13 Feb-13 Mar-13 Jan-13 Feb-13 Mar-13 Jan-12 to
Mar-12
Jan-13 to
Mar-13
New Single-family 151.3 159.4 162.0 147.4 152.4 157.6 24.5 33.2
  Month-over-Month % Change 3.4% 5.4% 1.6% 2.3% 3.4% 3.4%    
  (Year-over-year % change of NSA data) 31.2% 36.1% 38.5% 30.5% 32.2% 35.4% 9.0% 35.4%
New Multifamily (2) 33.5 32.8 33.6 31.9 32.7 33.3 5.6 7.8
  5.2% -2.1% 2.5% 4.2% 2.5% 1.8%    
  42.0% 36.1% 40.5% 42.0% 39.0% 39.5% 9.3% 39.5%
New Residential (3) 184.8 192.2 195.6 179.3 185.0 190.8 30.1 41.0
  3.7% 4.0% 1.7% -7.5% 1.9% 6.2%    
  33.2% 36.1% 38.8% 31.4% 33.2% 36.1% 9.1% 36.1%
Residential Improvements (4) 108.6 107.5 106.1 121.8 113.8 107.4 22.3 20.0
  -13.4% -1.0% -1.3% -6.8% -6.5% -5.7%    
  -11.3% -11.1% -8.5% 1.5% -5.7% -10.3% 3.5% -10.3%
Total Residential (5) 293.3 299.7 301.6 301.0 298.9 298.2 52.4 60.9
  -3.4% 2.2% 0.7% -1.4% -0.7% -0.2%    
  13.9% 15.9% 19.1% 18.0% 16.1% 16.4% 6.7% 16.4%

(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 fell for the second month in a row, down 2.1% to 610,000 at a seasonally adjusted annual rate (SAAR) in March following a 4.4% drop in March. However, the three-month moving average was essentially flat in March (+0.2%) and April (-0.2%) — around 630,000 starts per month. The April decline in the three-month moving average follows eleven months of increases. Year-to-date NSA single-family starts were up 26.9% from the same period in 2012.

The decline in starts may be due to the adverse weather conditions in much of the country in March and April. Given the relatively mild weather in those months over recent years, the seasonal adjustment process may have amplified the slowdown in starts. The May starts numbers (due out in June) should indicate whether there is a real pull back in building or just a temporary pause.

At the same time, the inventory of single-family homes for sale is near historic lows. Based on April’s SA home sales rate, the 156,000 new homes for sale represented a 4.1 months’ supply, well below the historical average of about a 6 months’ supply. The single-family existing house market is similarly tight, with a 5.0 months’ supply of homes for sale for April. Based on demographics, single-family starts are considerably below the country’s needs. This leaves significant room for single-family housing construction to increase without creating a new housing bubble.

Single-family building permits jumped 3.0% to 617,000 in April after slipping 0.2% in March. Meanwhile, the three-month moving average of single-family permits has increased for 24 consecutive months.

After declining for three months running, the NAHB/Wells Fargo Housing Market Index (HMI) rose three points in May to 44. Despite the improvement in their outlook, builders still face the challenges of higher building materials costs, skilled labor shortages in some parts of the country, and difficulty in obtaining construction loans.

Multifamily Housing
Multifamily starts plunged 38.9% to 243,000 (SAAR) in April after soaring 25.6% in March and 11.6% February. Given that large variations in the monthly multifamily starts number are normal, the three-month moving average is used to obtain a better perspective on the underlying state of multifamily construction. The three-month moving average of April starts sank 4.1% from March to 319,000, the first decrease in the average after eight consecutive monthly increases.

However, the three-month moving average for multifamily building permits rose 7.5% to 348,000, a turnaround following four months of decline.

Housing Starts Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Feb-13 Mar-13 Apr-13 Feb-13 Mar-13 Apr-13 Jan-12 to
Mar-12
Jan-13 to
Mar-13
Jan-12 to
Apr-12
Jan-13 to
Apr-13
     Northeast Starts 106 94 82 103 96 94 15 19 22 27
       Month-over-Month
       % Change
21.8% -11.3% -12.8% 14.1% -6.8% -1.7%        
       Year-over-year
       % Change of NSA data
65.8% 7.1% 8.5% 55.6% 24.7% 20.1% 10.8% 24.7% 17.8% 19.6%
     Midwest Starts 135 138 153 140 123 142 19 21 30 35
  42.1% 2.2% 10.9% -4.3% -12.4% 15.8%        
  44.0% 19.0% 22.1% 12.0% 14.4% 25.5% 28.1% 14.4% 31.0% 17.3%
     South Starts 505 563 406 484 517 491 90 119 125 155
  4.6% 11.5% -27.9% 4.0% 6.7% -5.0%        
  18.3% 59.6% 4.0% 25.9% 32.4% 26.1% 22.5% 32.4% 27.1% 24.5%
     West Starts 223 226 212 223 227 220 31 50 45 69
  -4.3% 1.3% -6.2% 8.4% 1.9% -3.1%        
  61.2% 52.4% 40.3% 67.8% 60.6% 50.3% 30.5% 60.6% 29.3% 54.5%
Total Starts (2) 969 1,021 853 950 963 948 155 209 222 286
  7.9% 5.4% -16.5% 4.7% 1.3% -1.6%        
  33.0% 45.7% 14.8% 34.7% 35.1% 30.3% 23.4% 35.1% 27.0% 29.0%
     Single-family Starts 652 623 610 629 630 628 106 136 152 193
  6.2% -4.4% -2.1% 4.2% 0.2% -0.2%        
  37.3% 30.6% 22.1% 26.5% 29.0% 29.1% 17.9% 29.0% 19.6% 26.9%
     Multifamily 317 398 243 321 333 319 49 73 70 93
  11.6% 25.6% -38.9% 5.6% 3.6% -4.1%        
  25.1% 79.8% -2.0% 52.9% 48.2% 32.8% 37.2% 48.2% 47.1% 33.6%
New Home Sales (3) 429 444 454 428 444 442 87 108 121 153
  -6.3% 3.5% 2.3% 2.5% 3.7% -0.3%        
  13.3% 23.5% 32.4% 22.1% 24.1% 23.5% 22.5% 24.1% 19.8% 26.4%
Manufactured Home
Shipments
61 53 NA 60 60 NA 13 13 17 NA
  -5.1% -12.6%   3.3% -0.7%          
  0.1% -4.4%   -0.4% 0.5%   31.6% 0.5% 27.5%  

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

Residential Building Permits Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Feb-13 Mar-13 Apr-13 Feb-13 Mar-13 Apr-13 Jan-12 to
Mar-12
Jan-13 to
Mar-13
Jan-12 to
Apr-12
Jan-13 to
Apr-13
     Northeast Permits 83 100 98 94 94 94 17 19 24 27
       Month-over-Month
       % Change
-17.0% 20.5% -2.0% 1.8% 0.0% -0.7%        
       Year-over-year
       % Change of NSA data
-14.0% 22.0% 10.3% 17.8% 13.3% 6.7% 28.9% 13.3% 36.5% 12.3%
     Midwest Permits 148 139 170 147 145 152 22 26 33 42
  0.7% -6.1% 22.3% -3.5% -1.6% 5.3%        
  16.9% 3.8% 54.6% 28.5% 16.8% 26.6% 28.7% 16.8% 24.7% 29.3%
     South Permits 488 450 522 469 462 487 96 112 128 158
  8.9% -7.8% 16.0% 0.0% -1.5% 5.3%        
  22.9% 12.5% 45.3% 21.8% 17.2% 26.4% 30.9% 17.2% 29.3% 24.2%
     West Permits 233 201 227 226 218 220 37 49 50 69
  5.9% -13.7% 12.9% 4.6% -3.7% 1.1%        
  48.6% 1.2% 44.9% 55.5% 34.2% 28.0% 44.3% 34.2% 38.6% 37.2%
Total Permits (2) 952 890 1,017 937 919 953 171 206 235 297
  4.0% -6.5% 14.3% 0.7% -1.9% 3.7%        
  23.4% 9.1% 42.9% 28.8% 20.3% 24.7% 33.0% 20.3% 31.2% 26.5%
     Single-family Permits 600 599 617 591 596 605 109 134 154 194
  2.0% -0.2% 3.0% 1.5% 0.8% 1.6%        
  17.6% 19.8% 35.3% 23.7% 22.7% 24.8% 20.6% 22.7% 20.3% 26.4%
     Multifamily Permits 352 291 400 346 323 348 62 72 81 103
  7.6% -17.3% 37.5% -0.7% -6.6% 7.5%        
  34.8% -8.3% 60.2% 37.3% 16.0% 24.7% 62.8% 16.0% 58.2% 26.7%

(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) Total permits may not equal sum of regions due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

Outlook for Residential Construction
The housing market hit a soft patch that may prove to be weather related, but appears strong overall. Housing prices are rising in much of the country. The February 10-city and 20-city S&P/Case-Shiller® Home Price Indexes were up 8.6% and 9.3%, respectively, since February 2012. Further, the March Freddie Mac House Price Index was up 6.7% on a year-over-year basis. Higher prices have lifted some underwater mortgages above water, encouraging those homeowners to continue to make their mortgage payments, avoiding foreclosure. Prospective homebuyers are more willing to contract to purchase a new or existing home when house prices are rising. Lenders are also more willing to lend to homebuyers and homebuilders in a market with increasing prices.

Interest rates near their historical lows and the Federal Reserve’s willingness to purchase assets that will keep mortgage interest rates low provide support to the housing market. Thus, the outlook for residential construction remains positive.

The Reed forecast is for new residential construction spending to increase 30.1% this year and to increase 15.9% 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% 26.9% 16.6%
     Midwest Starts 97 98 101 128 150 167
  -28.0% 0.8% 3.1% 26.8% 17.0% 11.7%
     South Starts 278 298 308 398 521 578
  -38.6% 6.9% 3.5% 29.2% 30.8% 11.1%
     West Starts 117 120 133 175 242 305
  -40.5% 2.7% 10.5% 32.2% 38.0% 26.3%
Total Starts (1) 554 587 609 781 1,013 1,169
  -38.8% 5.9% 3.7% 28.2% 29.8% 15.4%
     Single-family Starts 445 471 431 535 683 791
  -28.4% 5.9% -8.6% 24.3% 27.7% 15.7%
     Multifamily Starts 109 116 178 245 330 378
  -61.6% 6.2% 54.0% 37.7% 34.3% 14.6%
New Home Sales (2) (7) 375 323 306 367 470 561
  -22.7% -13.9% -5.3% 19.9% 28.1% 19.2%
Manufactured Home Shipments (7) 50 50 52 55 61 68
  -39.2% 0.5% 3.1% 6.3% 11.9% 10.7%
     Residential Construction Spending (Billions of Current Dollars) (7)  
New Single-family 105.3 112.6 108.2 129.3 168.3 195.8
  -43.3% 6.9% -3.9% 19.5% 30.2% 16.3%
New Multifamily (3) 35.9 24.1 22.6 27.2 35.2 40.2
  -30.0% -32.9% -6.0% 20.4% 29.3% 14.1%
New Residential (4) 141.2 136.7 130.8 156.5 203.6 236.0
  -40.4% -3.2% -4.3% 19.6% 30.1% 15.9%
Residential Improvements (5) 112.7 112.5 114.9 125.6 110.2 121.4
  -6.6% -0.2% 2.2% 9.3% -12.2% 10.1%
Total Residential (6) 253.9 249.1 245.7 282.8 313.8 357.4
  -29.0% -1.9% -1.4% 15.1% 11.0% 13.9%

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 Ends the First Quarter on a Sour Note
Nonresidential Building Construction Spending Sinks in March
Heavy Engineering Construction Slumps in March