Economic environment improves for homebuilders
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A marginal rise in the homebuilders’ survey based index of market expectations was the only positive economic development for residential contractors in the last month. All other market drivers are weakening except for nominal consumer income which is currently misleading due to drain on income from high fuel prices.
The small rise in the homebuilders’ survey probably reflects higher expectations for market conditions beyond a few months in response to the accelerated declines in job site activity and home prices, both essential to stopping the downturn in the housing market.
In the remodeling market, existing home sales have steadied at a low level. Mortgage refinancing applications, which throw off a substantial amount of “cash out” for remodeling, have steadied at an average level. Nonetheless, all of the measures of current activity at remodeling job sites are declining. This includes hours worked on job sites, building supply store sales and wood product shipments.
Homebuilders have taken remodeling contracts that they were too busy to do a few years ago. As a result, the decline in hours worked reported for remodeling contractors underestimates the amount of remodeling work underway. This is confirmed by the Census Bureau estimates of remodeling spending, 10% above a year ago, that are derived from surveys of consumers about what they spent on remodeling.
Key Indicators of the U.S. Market Environment — May 2008
Residential Construction (New and Remodeling)
| Year Ago | Previous Month or Qtr. |
Latest | Level | Recent Trend | Impact on Const. | ||
| New Residential | |||||||
| Affordability — 30-Year mortgage index (NAR) | 113 | 134.8 | Mar | 129.6 | High | Falling | |
| Affordability — 1-Year ARM mortgage index (NAR) | 115.5 | 142.3 | Mar | 137.4 | High | Falling | |
| Consumer income growth, % change y/y (U.S. Commerce Dept.) | 10.0 | 4.4 | Mar | 4.4 | High | Steady | |
| Consumer real income growth, % change y/y (U.S. Commerce Dept.) | 5.4 | 0.5 | Mar | 1.4 | Low | Falling | |
| Employment change, 000s (U.S. Labor Dept.) | 46 | -81 | Apr | -20 | Low | Falling | |
| Household net worth, % change y/y (FRB) | 6.1 | 7.4 | Q3 | 3.4 | Average | Falling | |
| 30-Year fixed mortgage rate, % level (Freddie Mac) | 5.92 | 5.88 | W/E May 8th | 6.05 | Low | Rising | |
| 1-Year ARM mortgage rate, % level (Freddie Mac) | 5.19 | 5.18 | W/E May 8th | 5.29 | Low | rising | |
| Consumer confidence index (The Conference Board) | 106.3 | 65.9 | Apr | 62.3 | Low | Falling | |
| Housing market index (NAHB) | 30 | 20 | May | 22 | Low | Rising | |
| Homes under construction, 000s (U.S. Census Bureau) | 1,190 | 1,025 | Mar | 1,002 | Low | Falling | |
| New home inventory, number-of-months supply (U.S. Census Bureau) | 8.3 | 9.5 | Mar | 11 | High | Rising | |
| Existing home inventory, number-of-months supply (NAR) | 7.5 | 9.6 | Mar | 9.9 | High | Falling | |
| Residential Remodeling | |||||||
| Existing home sales, 000s (NAR) | 6,110 | 5,030 | Mar | 4,930 | Low | Steady | |
| Building supply store sales, seasonally adj. $ millions (U.S. Census Bureau) |
27,725 | 26,649 | Apr | 27,126 | Low | Falling | |
| Wood product shipments, seasonally adj. $ millions (U.S. Census Bureau) |
7,509 | 7,502 | Mar | 7,544 | Low | Steady | |
| Remodeling contractor hours worked, % change y/y (U.S. Labor Dept.) |
0.9 | -3.3 | Mar | -2.8 | Low | Falling | |
| Mortgage refinancing applications, index (Mortgage Banking Association) | 2,115 | 1,906 | W/E May 2nd | 2,274 | Average | Steady | |
Abbreviations: y/y = year over year; WE = week ending; ARM = adjustable-rate mortgage;
NAR = National Association of Realtors; FRB = Federal Reserve Board;
NAHB = National Association of Home Builders.
Table: Reed Construction Data and Reed Construction Data - CanaData.
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