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Residential Construction Continues to Struggle

0 1575 Market Intelligence

The residential construction market continues to struggle from the effects of: a sluggish economy, the negative effects of the overhang of the inventory of foreclosed homes and the resulting downward pressure on housing prices, and difficulty in obtaining financing (a mortgage for a household, credit for home builders) despite historically low interest rates.

The residential construction market continues to struggle from the effects of:

  • a sluggish economy, which is producing too few new jobs, adding to the unwillingness of households to undertake the major obligation of purchasing a home
  • the negative effects of the overhang of the inventory of foreclosed homes and the resulting downward pressure on housing prices, adding to the inability/unwillingness of households to purchase a house
  • difficulty in obtaining financing (a mortgage for a household, credit for home builders) despite historically low interest rates

The result has been housing starts, despite monthly variability, largely in a holding pattern. Although housing starts remain at very low levels—barely enough to replace the depreciation and loss (damage from fire, flood, earthquake, etc.) from the existing stock of houses, they are above the even lower levels from two years ago.

What little evidence of improvement in residential construction has come from multifamily projects. Declining vacancy rates have contributed to rising rents, which has bolstered the interest in investing in multifamily rental projects. Multifamily starts will continue to rise with employment gains, which will boost occupancy rates, allowing for rent increases. The Fed’s Operation Twist, by lowering long-term rates, will increase the desirability of multifamily projects.

The forecast is for residential construction spending to fall 6.5% in 2011 and then rise 1.3% in 2012 and 7.2% in 2013.

U.S. Residential Building Construction

  Monthly Figures (1)
(latest actual values)
Annual Figures
  Actual Forecast
  Jun-11 Jul-11 Aug-11 2007 2008 2009 2010 2011 2012 2013
Northeast Starts 72 86 61 143 121 62 71 73 65 81
   (Year-over-year % change of NSA data) 10.9% 13.9% -17.4% -14.5% -15.4% -48.8% 15.2% 2.4% -11.0% 24.6%
Midwest Starts 122 78 80 210 135 97 98 86 77 92
   (Year-over-year % change of NSA data) 39.6% -15.1% -28.2% -24.9% -35.8% -28.0% 0.8% -12.1% -10.5% 19.5%
South Starts 287 302 292 681 453 278 297 291 273 301
   (Year-over-year % change of NSA data) -0.7% 10.5% 4.0% -25.2% -33.4% -38.7% 6.9% -2.2% -6.2% 10.3%
West Starts 132 135 138 321 196 117 120 123 112 132
   (Year-over-year % change of NSA data) 20.4% 25.5% 0.0% -27.7% -38.8% -40.4% 2.7% 2.5% -8.9% 17.9%
Total Starts 613 601 571 1355 905 554 587 573 527 606
   (Year-over-year % change of NSA data) 11.7% 9.1% -5.9% -24.8% -33.2% -38.8% 6.0% -2.4% -8.0% 15.0%
Total Single-family Starts 447 423 417 1046 622 445 471 417 403 451
   (Year-over-year % change of NSA data) -2.0% -1.5% -2.0% -28.6% -40.5% -28.5% 5.9% -11.5% -3.4% 11.9%
Total Multifamily Starts 166 178 154 309 283 109 116 156 124 155
   (Year-over-year % change of NSA data) 86.7% 49.1% -14.5% -7.9% -8.3% -61.6% 6.3% 34.7% -20.5% 25.0%
New Home Sales (2)  303 302 295 776 485 374 322 295 283 317
   (Year-over-year % change of NSA data) 0.0% 7.7% 13.0% -26.2% -37.5% -22.9% -13.9% -8.4% -4.1% 12.0%
Manufactured Home Shipments 53 44 NA 96 82 50 50 47 45 49
   (Year-over-year % change of NSA data) -7.7% -13.8%   -18.4% -14.5% -39.3% 0.7% -6.1% -4.3% 8.9%
  Residential Construction Spending
New Residential (Billions Current $)
126.2 125.9 NA 354.1 237.0 141.2 136.2 127.4 129.0 138.2
   (Year-over-year % change of NSA data) -10.8% -9.3%   -24.5% -33.1% -40.4% -3.5% -6.5% 1.3% 7.2%
Residential Improvements* (Billions Current $) 133.7 129.9 NA 139.5 120.7 112.7 112.5 119.8 123.3 128.8
   (Year-over-year % change of NSA data) 22.8% 19.3%   -3.9% -13.5% -6.6% -0.2% 6.5% 2.9% 4.5%

Housing starts, home sales, and manufactured home shipments are all in thousands
(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
*Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce.
Forecast: Reed Construction Data
.

by Bernie Markstein

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