Single-family Construction Sends New Residential Spending Higher in February

04/26/2013 by Bernard M. Markstein

New residential construction spending improved a healthy 3.0% on a seasonally adjusted (SA) basis in February following a 3.9% jump in January. February marked the eleventh month in a row that spending increased. Year-to-date not seasonally adjusted (NSA) spending was up 33.8% from the same period in 2012. New single-family construction spending was the source of the continued improvement, surging 4.3% in February following January’s strong 3.6% increase. New multifamily construction spending, on the other hand, tumbled 2.7% in February, following ten months of increases, including a robust 5.3% advance in January and an almost as strong 4.6% increase in December. On a year-to-date NSA basis, single-family construction spending was up 32.8%, and multifamily spending was up 38.1%.

Residential Construction Spending Data
(Billions of Current Dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Dec-12 Jan-13 Feb-13 Dec-12 Jan-13 Feb-13 Jan-12 to
Feb-12
Jan-13 to
Feb-13
New Single-family 146.3 151.6 158.1 144.1 147.5 152.0 15.5 20.6
  Month-over-Month % Change 1.3% 3.6% 4.3% 2.4% 2.3% 3.1%    
  (Year-over-year % change of NSA data) 29.5% 31.2% 34.6% 30.0% 30.5% 31.7% 8.7% 32.8%
New Multifamily (2) 31.8 33.5 32.6 30.6 31.9 32.6 3.6 5.0
  4.6% 5.3% -2.7% 3.8% 4.2% 2.3%    
  35.0% 41.9% 34.5% 20.4% 41.9% 38.1% 9.3% 38.1%
New Residential (3) 178.1 185.1 190.6 174.7 179.4 184.6 19.1 25.6
  1.9% 3.9% 3.0% 1.0% -6.9% -1.6%    
  30.5% 33.1% 34.6% 30.3% 31.4% 32.7% 8.8% 33.8%
Residential Improvements (4) 125.4 118.4 118.9 130.6 125.0 120.9 14.5 14.5
  -4.5% -5.6% 0.5% -1.7% -4.3% -3.3%    
  3.9% -1.2% 1.2% 10.8% 4.4% 1.4% 2.6% -0.1%
Total Residential (5) 303.5 303.4 309.6 305.3 304.4 305.5 33.6 40.1
  -0.9% 0.0% 2.0% 0.7% -0.3% 0.4%    
  18.4% 18.2% 20.3% 21.1% 19.3% 18.9% 6.0% 19.2%

(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 dropped 4.8% to 619,000 at a seasonally adjusted annual rate (SAAR) in March following a 5.5% surge in February. However, the three-month moving average merely flattened out in March following ten months of steady increases. Year-to-date NSA single-family starts were up 28.2% from the same period in 2012.

The inventory of single-family homes for sale remains near historic lows. Based on February’s SA home sales rate, the 152,000 new homes for sale represented a 4.4 month supply, well below the roughly 6 months’ supply that has been the historical average. The single-family existing house market is similarly tight, with a 4.9 months’ supply of homes for sale as of February. Even with the recent expansion in single-family starts, construction activity remains considerably below what the country needs over the long term. Thus, there is considerable room for single-family housing construction to increase further without resulting in overbuilding.

Single-family building permits declined 0.5% to 595,000 in March after increasing 2.4% in February. The three-month moving average of single-family permits has risen steadily for 23 consecutive months.

The NAHB/Wells Fargo Housing Market Index (HMI) is flashing a warning signal. The index fell two points in April, its third consecutive monthly decline, down to 42 from March’s 44. Increasing costs for building materials (some of which have risen at double digit rates from a year ago) and difficulty in obtaining credit are limiting builders’ ability to meet the rising demand for new single-family houses. Thus, there is frustration among many builders, resulting in a falling HMI.

Multifamily Housing
Multifamily starts shot up 31.1% to 417,000 (SAAR) in March following a jump of 11.2% in 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 health of multifamily construction. The three-month moving average for March increased 5.4% from February to 340,000, the highest average since June 2008.

The three-month moving average for multifamily building permits fell 2.9% to 323,000, an indication that the developers may be reacting to the recent influx of new buildings into the rental market.

Housing Starts Data

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Year-to-Date (NSA)
  Jan-13 Feb-13 Mar-13 Jan-13 Feb-13 Mar-13 Jan-12 to
Feb-12
Jan-13 to
Feb-13
Jan-12 to
Mar-12
Jan-13 to
Mar-13
     Northeast Starts 86 104 98 90 102 96 8 12 15 20
       Month-over-Month
       % Change
-25.9% 20.9% -5.8% 3.1% 13.3% -5.9%        
       Year-over-year
       % Change of NSA data
17.4% 63.2% 12.9% 12.2% 54.8% 26.6% -5.6% 38.1% 10.8% 26.6%
     Midwest Starts 96 136 149 146 140 127 10 12 19 23
  -48.7% 41.7% 9.6% -12.1% -4.1% -9.1%        
  -20.8% 46.0% 31.0% 23.0% 12.5% 20.3% 18.4% 11.7% 28.1% 20.3%
     South Starts 485 505 560 467 485 517 59 71 90 118
  4.3% 4.1% 10.9% 3.5% 3.9% 6.5%        
  19.0% 18.3% 57.9% 29.9% 25.9% 31.9% 35.2% 18.7% 22.5% 31.9%
     West Starts 235 223 229 206 224 229 19 31 31 51
  9.8% -5.1% 2.7% 3.0% 8.9% 2.2%        
  71.1% 62.2% 54.8% 38.6% 68.2% 61.9% 33.3% 66.5% 30.5% 61.9%
Total Starts (2) 902 968 1,036 908 951 969 97 125 155 211
  -8.1% 7.3% 7.0% 0.5% 4.7% 1.9%        
  24.4% 33.4% 47.9% 28.8% 34.8% 36.1% 28.2% 29.0% 23.4% 36.1%
     Single-family Starts 616 650 619 601 628 628 65 83 106 135
  -0.2% 5.5% -4.8% 1.5% 4.4% 0.1%        
  19.0% 37.0% 28.6% 21.6% 26.4% 28.2% 22.7% 27.9% 17.9% 28.2%
     Multifamily 286 318 417 307 323 340 32 42 49 76
  -21.6% 11.2% 31.1% -1.5% 5.1% 5.4%        
  36.9% 26.9% 91.6% 44.0% 53.6% 53.0% 41.1% 31.3% 37.2% 53.0%
New Home Sales (3) 431 411 NA 402 408 NA 53 63 87 NA
  13.1% -4.6%   5.9% 1.4%          
  30.4% 10.0%   21.4% 16.9%   23.3% 18.9% 22.5%  
Manufactured Home
Shipments
65 62 NA 58 60 NA 8 8 13 NA
  20.0% -4.4%   5.8% 4.0%          
  6.5% 0.1%   -7.8% -0.4%   42.9% 3.3% 31.6%  

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)
  Jan-13 Feb-13 Mar-13 Jan-13 Feb-13 Mar-13 Jan-12 to
Feb-12
Jan-13 to
Feb-13
Jan-12 to
Mar-12
Jan-13 to
Mar-13
     Northeast Permits 99 81 101 92 93 94 10 12 16 19
       Month-over-Month
       % Change
0.0% -18.2% 24.7% 6.9% 0.7% 0.7%        
       Year-over-year
       % Change of NSA data
37.5% -10.9% 22.4% 20.6% 20.6% 15.5% 27.2% 11.7% 25.8% 15.5%
     Midwest Permits 143 145 142 147 143 143 12 15 22 26
  1.4% 1.4% -2.1% -1.1% -2.9% 0.2%        
  44.0% 16.9% 7.8% 38.5% 26.3% 18.8% 27.8% 28.7% 27.5% 18.8%
     South Permits 444 482 452 452 458 459 57 72 92 111
  -0.7% 8.6% -6.2% -0.6% 1.2% 0.4%        
  22.5% 28.0% 15.5% 24.8% 23.7% 21.6% 33.6% 25.3% 25.3% 21.6%
     West Permits 218 231 207 212 224 219 19 32 36 49
  -1.8% 6.0% -10.4% 5.1% 5.3% -2.2%        
  84.1% 48.6% 2.9% 45.3% 54.5% 35.3% 38.8% 63.7% 43.5% 35.3%
Total Permits (2) 904 939 902 904 917 915 98 130 166 205
  -0.6% 3.9% -3.9% 1.3% 1.4% -0.3%        
  37.6% 27.2% 11.4% 30.4% 30.0% 23.7% 32.7% 32.1% 29.0% 23.7%
     Single-family Permits 584 598 595 575 585 592 65 83 107 133
  1.9% 2.4% -0.5% 1.1% 1.7% 1.3%        
  35.5% 19.7% 20.4% 27.8% 25.1% 24.3% 23.3% 26.9% 18.5% 24.3%
     Multifamily Permits 320 341 307 329 332 323 33 47 58 72
  -4.8% 6.6% -10.0% 1.9% 0.9% -2.9%        
  41.5% 42.9% -3.6% 34.4% 38.5% 22.4% 55.9% 42.2% 54.1% 22.4%

(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 continues to improve. Housing prices are climbing in many parts of the country. The January 10-city and 20-city S&P/Case-Shiller® Home Price Indexes were up 7.3% and 8.1%, respectively, since January 2012. Higher prices increase homeowners’ equity, moving some underwater mortgages above water and reducing the likelihood of foreclosure for many. Rising home values also boost the confidence of prospective homebuyers in making the decision to purchase a new or existing home. At the same time, rising housing prices increase lenders’ willingness to issue loans to homebuyers and to homebuilders.

These positive factors are further supported by historically low interest rates and the Federal Reserve’s announced plans to continue to purchase assets that will keep mortgage interest rates low. As a result, the future for residential construction remains bright. Moreover, improving residential construction activity helps lift the rest of the economy.

The Reed Construction Data forecast is for new residential construction spending to increase 25.9% this year and to increase 15.2% in 2014.

Residential Construction Data

  Actual Forecast
  2009 2010 2011 2012 2013 2014
     Northeast Starts 62 72 68 80 102 118
       (Year-over-year % change of NSA data) -48.9% 15.9% -5.4% 17.7% 28.3% 15.4%
     Midwest Starts 97 98 101 128 147 162
  -28.0% 0.8% 3.1% 26.8% 14.9% 10.4%
     South Starts 278 298 308 398 525 578
  -38.6% 6.9% 3.5% 29.2% 32.1% 10.1%
     West Starts 117 120 133 175 250 315
  -40.5% 2.7% 10.5% 32.2% 42.9% 25.9%
Total Starts (1) 554 587 609 781 1,025 1,174
  -38.8% 5.9% 3.7% 28.2% 31.3% 14.5%
     Single-family Starts 445 471 431 535 682 795
  -28.4% 5.9% -8.6% 24.3% 27.5% 16.5%
     Multifamily Starts 109 116 178 245 343 379
  -61.6% 6.2% 54.0% 37.7% 39.7% 10.6%
New Home Sales (2) (7) 375 323 306 367 439 531
  -22.7% -13.9% -5.3% 19.9% 19.5% 21.0%
Manufactured Home Shipments (7) 50 50 52 55 62 68
  -39.2% 0.5% 3.1% 6.3% 13.4% 9.2%
     Residential Construction Spending (Billions of Current Dollars) (7)  
New Single-family 105.3 112.6 108.2 129.3 162.0 187.1
  -43.3% 6.9% -3.9% 19.5% 25.4% 15.5%
New Multifamily (3) 35.9 24.1 22.6 27.2 35.0 39.9
  -30.0% -32.9% -6.0% 20.4% 28.4% 14.1%
New Residential (4) 141.2 136.7 130.8 156.5 197.0 227.0
  -40.4% -3.2% -4.3% 19.6% 25.9% 15.2%
Residential Improvements (5) 112.7 112.5 114.9 125.6 123.1 135.8
  -6.6% -0.2% 2.2% 9.3% -1.9% 10.3%
Total Residential (6) 253.9 249.1 245.7 282.0 320.1 362.9
  -29.0% -1.9% -1.4% 14.8% 13.5% 13.4%

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 Improves in February
Nonresidential Building Construction Spending Partially Recovers in February
Heavy Engineering Construction Begins to Improve in February