New Residential Construction Spending Growth Continues to Slow in May

07/23/2013 by Bernard M. Markstein

New residential construction spending advanced 0.8% on a seasonally adjusted (SA) basis in May after rising 1.5% in April. May marked the third consecutive month that the rate of increase declined from the previous month’s rate. Meanwhile, new residential construction spending has increased for 20 months in a row. Year-to-date not seasonally adjusted (NSA) spending was up 35.9% from the same period in 2012.

New single-family construction spending inched up 0.4% in May after growing 1.0% in April. New multifamily construction spending increased a healthy 2.4% in May after soaring an even stronger 3.6% in April. On a year-to-date NSA basis, single-family construction spending was up 34.5% and multifamily spending was up 42.7% from the same period in 2012.

The numbers incorporate the Census Bureau’s annual benchmark revision of the construction spending data over the previous two years (back to January 2011). See “Revisions to Construction Spending Data for 2011-13” for a brief commentary and tables showing the revisions.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Mar-13 Apr-13 May-13 Mar-13 Apr-13 May-13 Jan-12 to
May-12
Jan-13 to
May-13
New Single-family 164.0 165.7 166.3 159.7 163.7 165.3 45.5 61.2
  Month-over-Month % Change 1.7% 1.0% 0.4% 3.1% 2.5% 1.0%    
  (Year-over-year % change of NSA data) 36.6% 36.0% 33.4% 34.3% 35.8% 35.2% 13.6% 34.5%
New Multifamily (2) 35.3 36.6 37.5 34.3 35.3 36.5 10.0 14.3
  4.4% 3.6% 2.4% 1.9% 3.0% 3.4%    
  44.0% 43.1% 42.7% 42.5% 42.7% 42.7% 11.8% 42.7%
New Residential (3) 199.3 202.3 203.8 193.9 198.9 201.8 55.5 75.5
  2.1% 1.5% 0.8% 2.9% 2.6% 1.4%    
  37.9% 37.3% 35.0% 35.8% 37.0% 36.7% 13.3% 35.9%
Residential Improvements (4) 125.8 122.4 124.8 128.7 125.3 124.4 45.3 45.1
  -1.5% -2.7% 1.9% 5.5% -2.6% -0.8%    
  1.7% -6.0% -4.6% 4.1% -1.1% -3.4% 3.5% -0.5%
Total Residential (5) 325.1 324.7 328.6 322.6 324.3 326.2 100.8 120.6
  0.7% -0.1% 1.2% 3.9% 0.5% 0.6%    
  22.5% 17.1% 15.9% 22.3% 20.2% 18.2% 8.7% 19.5%

(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 Reed Economics 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 declined 0.8% to 591,000 starts at a seasonally adjusted annual rate (SAAR) in June after rising 0.5% in May. Second quarter starts were down 5.8% from the first quarter. However, year-to-date NSA single-family starts were up 20.2% in June from the same period in 2012.

The inventory of single-family homes for sale has been on the rise since July 2012, but remains near its historic low. Based on May’s SA home sales rate, the 161,000 new homes for sale represented a 4.1 months’ supply, well below the historical norm of around a 6 months’ supply. The single-family existing house market is similarly tight, with a 5.0 months’ supply of homes for sale for June. Despite some analysts’ concerns, no new single-family housing bubble is forming. Based on demographics, single-family starts remain considerably below the country’s needs.

The stalling of single-family housing starts in the second quarter may be weather related. Single-family building permits, which are less weather dependent, advanced 0.6% to 624,000 in June after increasing 1.0% in May. Further, the three-month moving average of single-family permits has increased for 26 consecutive months.

The NAHB/Wells Fargo Housing Market Index (HMI) rose to its highest level since January 2006, jumping six points in July to 57 after increasing a slightly stronger seven points in June. June and July are the only times that the HMI was above 50 since April 2006. A reading above 50 indicates more builders believe that sales conditions are good than believe they are poor. Increases in the HMI are usually followed by increases in single-family housing starts.

Multifamily Housing
The ever volatile multifamily starts plunged 26.2% to 245,000 (SAAR) in June after soaring 28.2% in May. Given that large variations in the monthly multifamily starts number are not unusual, many analysts look at the three-month moving average to determine the underlying condition of multifamily construction. The three-month moving average of starts for June fell 14.1% from May to 279,000.

The influx of completed multifamily projects has pushed vacancy rates higher and has softened rental rates in some markets. As a result, developers have slowed the pace for starting new projects as the market absorbs the new supply. Weather, as with single-family starts, may have played a role as well.

At the moment, multifamily permits appear to have flattened. The three-month moving average for multifamily building permits was down slightly to 348,000 permits (-0.4%) in June.

Housing Starts Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Apr-13 May-13 Jun-13 Apr-13 May-13 Jun-13 Jan-12 to
May-12
Jan-13 to
May-13
Jan-12 to
Jun-12
Jan-13 to
Jun-13
     Northeast Starts 79 107 94 93 93 93 30 37 38 46
       Month-over-Month
       % Change
-16.0% 35.4% -12.1% -2.8% 0.4% 0.0%        
       Year-over-year
       % Change of NSA data
4.2% 37.8% 14.3% 18.4% 16.7% 18.9% 21.1% 23.1% 19.0% 21.3%
     Midwest Starts 154 136 126 143 143 139 41 50 52 62
  10.0% -11.7% -7.4% 15.9% 0.2% -3.3%        
  23.9% 22.8% 22.9% 27.1% 22.8% 23.2% 22.8% 19.8% 10.7% 20.4%
     South Starts 412 482 424 490 483 439 158 199 194 239
  -25.6% 17.0% -12.0% -4.6% -1.6% -9.0%        
  4.6% 32.9% 10.9% 25.4% 30.2% 15.8% 29.0% 25.9% 29.2% 23.1%
     West Starts 207 203 192 216 209 201 60 87 81 106
  -4.6% -1.9% -5.4% -3.9% -3.1% -4.0%        
  36.6% 25.8% -8.3% 46.9% 35.6% 14.6% 26.3% 45.1% 33.0% 31.5%
Total Starts (2) 852 928 836 942 928 872 290 373 364 453
  -15.2% 8.9% -9.9% -1.6% -1.5% -6.1%        
  14.2% 29.9% 7.6% 29.3% 28.6% 17.0% 26.7% 28.7% 26.0% 24.4%
     Single-family Starts 593 596 591 623 604 593 202 249 257 308
  -4.8% 0.5% -0.8% -1.1% -3.0% -1.8%        
  18.7% 15.4% 8.8% 27.7% 21.0% 14.0% 20.3% 23.2% 20.5% 20.2%
     Multifamily 259 332 245 319 324 279 87 123 108 145
  -32.2% 28.2% -26.2% -2.5% 1.6% -14.1%        
  4.0% 71.2% 4.4% 32.8% 47.4% 24.6% 44.5% 41.2% 41.4% 34.3%
New Home Sales (3) 466 476 NA 454 464 NA 156 202 190 NA
  3.3% 2.1%   0.6% 2.3%          
  35.3% 28.6%   27.6% 30.1%   20.9% 29.5% 21.0%  
Manufactured Home
Shipments
62 61 NA 59 59 NA 23 24 28 NA
  16.5% -2.9%   -1.2% -0.4%          
  14.8% 7.9%   3.6% 6.1%   24.9% 5.1% 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

Residential Building Permits Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Apr-13 May-13 Jun-13 Apr-13 May-13 Jun-13 Jan-12 to
May-12
Jan-13 to
May-13
Jan-12 to
Jun-12
Jan-13 to
Jun-13
     Northeast Permits 99 101 107 94 100 102 32 37 41 49
       Month-over-Month
       % Change
-1.0% 2.0% 5.9% -0.4% 6.4% 2.3%        
       Year-over-year
       % Change of NSA data
11.5% 32.9% 29.2% 7.2% 21.9% 24.6% 25.9% 17.4% 21.6% 20.0%
     Midwest Permits 165 153 146 151 152 155 45 57 57 71
  18.7% -7.3% -4.6% 4.1% 1.1% 1.5%        
  50.0% 22.2% 13.7% 24.8% 25.4% 27.9% 25.4% 26.2% 23.3% 23.6%
     South Permits 515 510 453 484 492 493 168 205 205 245
  14.4% -1.0% -11.2% 4.8% 1.5% 0.2%        
  43.4% 17.3% 6.8% 25.8% 23.4% 21.3% 33.0% 22.2% 30.3% 19.4%
     West Permits 226 221 205 220 216 217 68 91 86 110
  12.4% -2.2% -7.2% 0.9% -1.8% 0.6%        
  44.9% 28.9% 4.4% 28.0% 23.6% 24.3% 38.2% 35.1% 35.9% 28.5%
Total Permits (2) 1,005 985 911 949 960 967 313 391 388 474
  12.9% -2.0% -7.5% 3.3% 1.2% 0.7%        
  41.2% 22.1% 9.7% 24.2% 23.6% 23.4% 32.2% 25.0% 29.4% 22.1%
     Single-family Permits 614 620 624 604 611 619 204 256 252 313
  2.5% 1.0% 0.6% 1.5% 1.1% 1.4%        
  34.2% 24.1% 18.3% 24.4% 26.0% 25.3% 21.8% 25.6% 20.6% 24.2%
     Multifamily Permits 391 365 287 345 349 348 109 135 136 161
  34.4% -6.6% -21.4% 6.6% 1.3% -0.4%        
  57.1% 18.6% -5.0% 23.8% 19.2% 19.9% 57.5% 24.1% 49.5% 18.2%

(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 outlook for the housing market continues to be positive, in spite of recent slowing and higher interest rates. Severe weather in much of the country may have been behind this downturn. Housing prices continue their upward movement in much of the country. On a year-over-year basis the April 10-city and 20-city S&P/Case-Shiller® Home Price Indexes were up 11.6% and 12.1%, respectively. On a SA monthly basis, both indexes have increased for 15 consecutive months and prices for all 20 cities rose in each of the last five months.

On a year-over-year basis, the March Freddie Mac House Price Index was up 6.7%, and the April FHFA purchase-only home price index was up 7.4%. Rising home prices increase the equity homeowners have in their house. As a result, some underwater mortgages are raised above water, making it in the homeowners’ interest to make their mortgage payments and avoid foreclosure. With house prices rising, prospective homebuyers are more confident in proceeding with a purchase of a new or existing home. Lenders are also more willing to lend to homebuyers and homebuilders.

Mortgage rates have moved higher despite remarks by Federal Reserve Chairman Ben Bernanke that the Fed does not plan to reverse its purchase of mortgages and mortgage-backed securities anytime soon. Although the higher rates have hurt the refinance market, they are likely to push some reluctant potential homebuyers who may have been waiting for lower rates to enter the market or to proceed with a purchase before rates go even higher. Even with the recent rise in mortgage rates, they remain low by historical standards, keeping affordability high.

The Reed forecast is for new residential construction spending to increase 29.5% 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 98 112
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.7% 22.3% 14.9%
     Midwest Starts 97 98 101 128 140 157
  -28.0% 0.8% 3.1% 26.8% 9.5% 12.3%
     South Starts 278 298 308 398 491 563
  -38.6% 6.9% 3.5% 29.2% 23.4% 14.8%
     West Starts 117 120 133 175 220 275
  -40.5% 2.7% 10.5% 32.2% 25.4% 25.3%
Total Starts (1) 554 587 609 781 948 1,108
  -38.8% 5.9% 3.7% 28.2% 21.4% 16.8%
     Single-family Starts 445 471 431 535 625 730
  -28.4% 5.9% -8.6% 24.3% 16.8% 16.8%
     Multifamily Starts 109 116 178 245 323 378
  -61.6% 6.2% 54.0% 37.7% 31.6% 16.9%
New Home Sales (2) (7) 375 323 306 367 482 574
  -22.7% -13.9% -5.3% 19.9% 31.3% 19.0%
Manufactured Home Shipments (7) 50 50 52 55 63 70
  -39.2% 0.5% 3.1% 6.3% 14.2% 11.7%
     Residential Construction Spending (Billions of Current Dollars) (7)  
New Single-family 105.3 112.6 108.2 132.0 169.5 196.7
  -43.3% 6.9% -3.9% 22.0% 28.4% 16.1%
New Multifamily (3) 35.9 24.1 22.7 27.8 37.5 43.3
  -30.0% -32.9% -5.7% 22.6% 34.8% 15.3%
New Residential (4) 141.2 136.7 130.9 159.9 207.0 240.0
  -40.4% -3.2% -4.2% 22.1% 29.5% 15.9%
Residential Improvements (5) 112.7 112.5 121.8 126.7 127.9 139.4
  -6.6% -0.2% 8.3% 4.0% 1.0% 9.0%
Total Residential (6) 253.9 249.1 252.7 286.5 334.9 379.4
  -29.0% -1.9% 1.4% 13.4% 16.9% 13.3%

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 Reed Economics 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 Advances in May
Nonresidential Building Construction Spending Continues to Struggle in May
Heavy Engineering Construction Strengthens in May