New residential construction spending continued its recent upward march, increasing 1.5% on a seasonally adjusted (SA) basis in July after jumping 3.3% in June. Spending has risen for four consecutive months and for 12 of the last 14 months. On a year-to-date not seasonally adjusted (NSA) basis, new residential construction spending was up 13.9%. The rise in spending is being powered by both single-family construction spending, which advanced 1.5% after spurting up 3.1% in June, and multifamily construction spending, which was up a healthy 2.0% in July after soaring 4.0% the previous month. On a year-to-date basis, single-family and multifamily construction spending were up 13.5% and 15.8%, respectively, from the same period in 2011.
Residential improvements, which are not included in the new residential construction spending numbers but in the total residential spending numbers, plunged 5.4% in July after increasing 1.4% in June. Despite the July drop, improvements spending was up 3.2% on a year-to-date basis compared to the same period in 2011. The July fall in the improvements number was sufficient to offset the rise in new residential construction spending, pulling total residential construction spending down 1.6% after rising 2.4% in June. On a year-to-date basis, total residential construction spending was up 8.9%.
The improvements spending numbers are among the least reliable and subject to the greatest revisions of the construction spending numbers that the Census Bureau reports. The improvements spending data have been less reliable since the elimination of the Survey of Residential Additions and Remodeling (SORAR) by the Census Bureau at the end of 2007 due to budgetary constraints.
The Census Bureau has plans to implement a residential remodeling survey in FY 2014 that would essentially replace SORAR if funding can be obtained, an unlikely outcome. The lack of a suitable residential remodeling survey undermines not just the accuracy of the residential construction spending data, but also the residential component of the National Income and Product Accounts (NIPA), which is a component of gross domestic product (GDP). Sadly, even as our economy becomes more complex and the need for more extensive and precise data grows, lack of proper funding for data collection and analysis is resulting in the deterioration of the accuracy and quality of economic data.
Residential Construction Spending Data | ||||||||
| Monthly Figures (1) (latest actual values) |
3-Month Moving Average | Year-to-Date (NSA) | ||||||
| May-12 | Jun-12 | Jul-12 | May-12 | Jun-12 | Jul-12 | Jan-10 to Jul-11 |
Jan-11 to Jul-12 |
|
| New Single-family | 121.8 | 125.6 | 127.5 | 119.7 | 122.3 | 125.0 | 59.7 | 67.8 |
| Month-over-Month % Change | 1.9% | 3.1% | 1.5% | 1.1% | 2.2% | 2.1% | ||
| (Year-over-year % change of NSA data) | 14.7% | 18.4% | 19.4% | -8.6% | 13.5% | |||
| New Multifamily (2) | 26.3 | 27.4 | 27.9 | 25.3 | 26.4 | 27.2 | 12.8 | 14.8 |
| 3.3% | 4.0% | 2.0% | 3.0% | 4.4% | 3.1% | |||
| 20.5% | 19.2% | 25.3% | -8.2% | 15.8% | ||||
| New Residential (3) | 148.1 | 153.0 | 155.4 | 145.0 | 148.7 | 152.2 | 72.5 | 82.6 |
| 2.1% | 3.3% | 1.5% | ||||||
| 15.7% | 18.6% | 20.4% | -8.5% | 13.9% | ||||
| Residential Improvements (4) | 120.8 | 122.5 | 115.9 | 116.9 | 119.6 | 119.7 | 63.7 | 65.7 |
| 4.5% | 1.4% | -5.4% | 0.9% | 2.3% | 0.1% | |||
| -5.2% | 6.5% | 12.9% | 0.9% | 3.2% | ||||
| Total Residential (5) | 268.9 | 275.5 | 271.2 | 261.9 | 268.4 | 271.9 | 136.2 | 148.3 |
| 3.2% | 2.4% | -1.6% | 1.2% | 2.5% | 1.3% | |||
| 5.0% | 12.7% | 17.1% | -4.3% | 8.9% | ||||
(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures). | ||||||||
Single-Family Housing
The Census Bureau reported that August total housing starts reversed July’s drop of 2.8% (SA), increasing 2.3%. The increase was due to single-family housing starts jumping 5.5% to 535,000 at a seasonally adjusted annual rate (SAAR) from July’s 507,000. Single-family housing starts have been above 500,000 for seven of the last nine months.
Single-family building permits rose for the fifth month in a row, although they inched up a bare 1,000 to 512,000 from July’s 511,000. Nonetheless, permits were at their highest level since March 2010. Meanwhile, the September NAHB/Wells Fargo Housing Market Index (HMI) was up 3 points to 40 after rising 2 points the previous month. The September HMI is at its highest level since June 2006. Gains in the HMI usually precede rises in housing starts by one to two months.
Multifamily Housing
August multifamily starts plummeted 4.9% to 215,000 (SAAR), after surging 4.1% in July. Since multifamily starts move around a lot from month to month, it is more useful to look at the three-month moving average. August’s three-month moving average of 219,000 was up 3.5% from July. Also, the moving average has been above 200,000 starts for ten consecutive months. Meanwhile, August’s three-month moving average of multifamily building permits at 287,000 was down only slightly from July’s 288,000, which was the highest the average has been since September 2008.
Residential Construction Data | ||||||||||
| Monthly Figures (1) (latest actual values) |
3-Month Moving Average | Year-to-Date (NSA) | Year-to-Date (NSA) | |||||||
| Jun-12 | Jul-12 | Aug-12 | Jun-12 | Jul-12 | Aug-12 | Jan-10 to Jul-11 |
Jan-11 to Jul-12 |
Jan-10 to Aug-11 |
Jan-11 to Aug-12 |
|
| Northeast Starts | 78 | 87 | 76 | 78 | 80 | 80 | 40 | 46 | 45 | 53 |
| Month-over-Month % Change | 2.6% | 11.5% | -12.6% | -3.7% | 3.0% | 0.0% | ||||
| Year-over-year % Change of NSA data | 13.0% | 2.5% | 36.5% | -4.1% | 15.9% | -7.1% | 18.3% | |||
| Midwest Starts | 100 | 111 | 134 | 111 | 106 | 115 | 56 | 64 | 65 | 77 |
| -7.4% | 11.0% | 20.7% | -4.6% | -4.2% | 8.2% | |||||
| -18.9% | 26.4% | 58.1% | -1.6% | 13.6% | -4.9% | 19.5% | ||||
| South Starts | 368 | 351 | 364 | 376 | 361 | 361 | 178 | 227 | 205 | 259 |
| 0.8% | -4.6% | 3.7% | 1.3% | -3.9% | -0.1% | |||||
| 31.6% | 17.3% | 18.7% | -5.1% | 27.6% | -3.6% | 26.4% | ||||
| West Starts | 208 | 184 | 176 | 171 | 183 | 189 | 73 | 98 | 87 | 115 |
| 32.5% | -11.5% | -4.3% | 13.0% | 7.2% | 3.5% | |||||
| 54.6% | 41.7% | 25.4% | 1.9% | 34.0% | 2.0% | 32.6% | ||||
| Total Starts (2) | 754 | 733 | 750 | 736 | 731 | 746 | 347 | 434 | 401 | 504 |
| 6.8% | -2.8% | 2.3% | 2.2% | -0.6% | 2.0% | |||||
| 23.5% | 21.9% | 28.3% | -3.1% | 25.3% | -3.1% | 25.7% | ||||
| Single-family Starts | 537 | 507 | 535 | 518 | 519 | 526 | 254 | 307 | 293 | 357 |
| 4.7% | -5.6% | 5.5% | 3.7% | 0.2% | 1.4% | |||||
| 23.0% | 21.7% | 25.9% | -14.6% | 21.0% | -12.8% | 21.7% | ||||
| Multifamily | 217 | 226 | 215 | 218 | 212 | 219 | 93 | 127 | 108 | 148 |
| 12.4% | 4.1% | -4.9% | -1.2% | -2.6% | 3.5% | |||||
| 24.8% | 22.3% | 34.4% | 53.0% | 37.2% | 38.6% | 36.8% | ||||
| New Home Sales (3) | 359 | 372 | NA | 363 | 368 | NA | 184 | 224 | NA | NA |
| -3.5% | 3.6% | 0.6% | 1.3% | |||||||
| 21.4% | 25.9% | -11.5% | 21.7% | |||||||
| Manufactured Home Shipments | 51 | 51 | NA | 54 | 53 | NA | 26828 | 31936 | NA | NA |
| -8.9% | -0.1% | -3.7% | -2.1% | |||||||
| 1.1% | 14.8% | -12.5% | 19.0% | |||||||
Housing starts, home sales, and manufactured home shipments are all in thousands. | ||||||||||
Outlook for Residential Construction
The housing market continues to trend upward subject to the normal monthly movements.
The multifamily construction outlook is for continued growth. Our forecast for multifamily construction assumes the continuation of low interest rates, falling vacancy rates, and escalating rents. The forecast for single-family housing is for construction to stay on the present path of improvement from its admittedly present low level. Continued economic growth, increases in employment, historically low mortgage rates, and the Federal Reserve’s plan to purchase mortgages all point to further improvement for the housing market and thus for residential construction.
This month we extend the forecast horizon out to 2014. The new residential construction spending forecast is for an increase of 16.8% in 2012, 17.1% in 2013, and 15.2% in 2014. These increases are from a low base. Residential construction activity will still be below the nation’s long-term need based on demographics even by the end of 2014.
Residential Construction Data |
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| Actual | Forecast | |||||
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Northeast Starts | 62 | 72 | 68 | 80 | 95 | 111 |
| (Year-over-year % change of NSA data) | -48.9% | 15.9% | -5.4% | 18.0% | 18.2% | 17.5% |
| Midwest Starts | 97 | 98 | 101 | 118 | 139 | 150 |
| -28.0% | 0.8% | 3.1% | 16.7% | 18.0% | 8.1% | |
| South Starts | 278 | 298 | 308 | 381 | 411 | 466 |
| -38.6% | 6.9% | 3.5% | 23.9% | 7.7% | 13.6% | |
| West Starts | 117 | 120 | 133 | 174 | 233 | 298 |
| -40.5% | 2.7% | 10.5% | 31.4% | 33.6% | 28.0% | |
| Total Starts (1) | 554 | 587 | 609 | 753 | 877 | 1026 |
| -38.8% | 5.9% | 3.7% | 23.7% | 16.4% | 17.0% | |
| Single-family Starts | 445 | 471 | 431 | 525 | 608 | 706 |
| -61.6% | 6.2% | 54.0% | 28.2% | 17.8% | 18.6% | |
| Multifamily Starts | 109 | 116 | 178 | 229 | 269 | 319 |
| -28.4% | 5.9% | -8.6% | 21.8% | 15.8% | 16.3% | |
| New Home Sales (2) | 375 | 323 | 306 | 366 | 420 | 513 |
| -22.7% | -13.9% | -5.3% | 19.7% | 14.6% | 22.0% | |
| Manufactured Home Shipments | 50 | 50 | 52 | 57 | 64 | 72 |
| -39.2% | 0.5% | 3.1% | 9.7% | 12.5% | 12.9% | |
| Residential Construction Spending (Billions of Current Dollars) | ||||||
| New Single-family | 105.3 | 112.6 | 108.2 | 125.5 | 145.2 | 167.6 |
| -43.3% | 6.9% | -3.9% | 16.0% | 15.7% | 15.4% | |
| New Multifamily (3) | 35.9 | 24.1 | 22.6 | 27.3 | 33.7 | 38.4 |
| -30.0% | -32.9% | -6.0% | 20.8% | 23.2% | 14.1% | |
| New Residential (4) | 141.2 | 136.7 | 130.8 | 152.8 | 178.9 | 206.1 |
| -40.4% | -3.2% | -4.3% | 16.8% | 17.1% | 15.2% | |
| Residential Improvements (5) | 112.7 | 112.5 | 114.9 | 119.3 | 124.2 | 132.8 |
| -6.6% | -0.2% | 2.2% | 3.8% | 4.1% | 7.0% | |
| Total Residential (6) | 253.9 | 249.1 | 245.7 | 272.1 | 303.1 | 338.9 |
| -29.0% | -1.9% | -1.4% | 10.7% | 11.4% | 11.8% | |
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 Stumbles in July
Nonresidential Building Construction Falls in July
Heavy Engineering Construction Down Once More in July
