New Residential Construction Spending Continues to Improve

03/26/2012 by Bernard M. Markstein

Share

New residential construction spending advanced 2.0% in January, its third consecutive monthly increase, after rising 1.6% in December. Single-family construction spending increased a healthy 2.5% in January, its eighth consecutive monthly increase, after a 2.2% increase in December. However, multifamily construction spending fell for the second month in a row, down 0.4% after dropping 1.4% in December.

Single-family Housing
Single-family housing starts suffered a setback in February, falling 9.9% to 457,000 at a seasonally adjusted annual rate (SAAR) from a revised 507,000 in January. Given that single-family starts have generally been trending upward for the previous nine months, February’s starts may prove to be a temporary stumble. This view is supported by single-family building permits, which increased for the fifth month in a row and the tenth time over the past 12 months.

Additional support for a positive outlook for single-family construction comes from the NAHB/Wells Fargo Housing Market Index (HMI), which held steady in March at 28, its highest reading since May 2007. The HMI has proved to be a good indicator of the direction of housing starts in the short run.

Multifamily Housing
Multifamily housing construction has been a bright spot in the housing market for several months. Multifamily starts jumped 21.1% to 241,000 (SAAR) in February from January’s 199,000. However, since multifamily starts are a volatile measure, the three-month moving average provides a more useful picture. The moving average has generally been rising for the last several months — up in ten of the last 14 months. February’s three-month moving average of multifamily building permits at 236,000 was their highest reading since November 2008. The measure has risen over the last five consecutive months and 13 of the last 15 months.

Outlook for Residential Construction
Continued increases in employment will benefit the housing market in general, but multifamily housing demand in particular. People living in a shared housing situation because of unemployment or first entering the job market who subsequently become employed are likely to seek their own multifamily rental unit.

Nonetheless, the housing market continues to face serious, if diminishing obstacles. Foreclosures remain a serious problem and a drag on the housing market. Single-family builders must compete with the downward price pressure from the sale of foreclosed properties and short sales in many markets. On the positive side, housing prices in several metro markets have stabilized and foreclosures are no longer (or never were) a major problem in many of these markets. Also, there is evidence that lending standards for builders and buyers are easing somewhat.

Overall the outlook for multifamily construction spending remains positive. Continued low interest rates, falling vacancy rates, and rising rents underlie our relatively positive forecast for multifamily construction. The forecast for single-family construction is for continued slow recovery. The improving economy, stronger hiring, low mortgage rates, and rising consumer confidence are all positives for housing and residential construction.

The general improvement in the tenor of the housing market has been sufficient to raise our 2012 forecast of housing starts and increase our 2012 construction spending forecast for new residential construction by roughly $2 billion over last month’s forecast. Although a relatively minor amount from a construction spending perspective, given the low level of current activity, the year-over-year percentage increase went from last month’s 7.5% to this month’s 9.1%. The forecast for 2013 new residential construction spending is unchanged with an increase of 8.0%.

Residential Construction Data

  Monthly Figures (1)
(latest actual values)
3-Month
Moving Average
Actual Forecast
  Dec-11 Jan-12 Feb-12 Dec-11 Jan-12 Feb-12 2008 2009 2010 2011 2012 2013
Northeast Starts 62 73 64 74 77 66 121 62 72 68 76 89
  Month-over-Month % Change -35.4% 17.7% -12.3% 1.4% 4.1% -13.9%            
  (Year-over-year % change of NSA data) 5.0% -20.7% 19.4%       -15.3% -48.9% 15.9% -5.3% 12.5% 16.1%
Midwest Starts 167 100 103 124 121 123 135 97 98 101 112 128
  74.0% -40.1% 3.0% 22.7% -2.7% 1.9%            
  162.2% -8.9% 71.0%       -35.8% -28.0% 0.8% 3.3% 10.3% 14.8%
South Starts 327 398 404 331 356 376 453 278 298 308 393 431
  -4.7% 21.7% 1.5% 0.0% 7.7% 5.7%            
  20.1% 33.0% 31.6%       -33.4% -38.6% 6.9% 3.4% 27.7% 9.5%
West Starts 125 135 127 141 142 129 196 117 120 133 141 183
  -25.1% 8.0% -5.9% -8.0% 0.7% -9.4%            
  -9.2% 14.5% 41.5%       -38.9% -40.5% 2.7% 10.5% 6.0% 30.1%
Total Starts (2) 681 706 698 670 696 695 906 554 587 609 721 830
  -3.0% 3.7% -1.1% 1.8% 3.9% -0.2%            
  26.3% 15.7% 35.9%       -33.2% -38.8% 5.9% 3.8% 18.4% 15.0%
Total Single-family Starts 505 507 457 467 490 490 622 445 471 431 503 570
  10.3% 0.4% -9.9% 6.3% 5.0% -0.1%            
  16.5% 24.1% 18.4%       -40.5% -28.4% 5.9% -8.6% 16.7% 13.3%
Total Multifamily Starts 176 199 241 204 206 205 284 109 116 178 218 260
  -27.9% 13.1% 21.1% -7.3% 1.3% -0.5%            
  62.5% -0.7% 88.6%       -8.3% -61.6% 6.2% 54.1% 22.4% 19.1%
New Home Sales (3) 336 318 313 323 325 322 485 375 323 302 322 353
  4.3% -5.4% -1.6% 3.6% 0.7% -0.9%            
  4.3% 4.8% 13.6%       -37.5% -22.7% -13.9% -6.5% 6.5% 9.6%
Manufactured Home Shipments 56 61 NA 60 62 NA 82 50 50 49 58 69
  -19.0% 9.5%   0.5% 2.8%              
  38.4% 42.5%         -14.5% -39.3% 0.7% -1.5% 17.6% 18.5%
     Residential Construction Spending (Billions Current $)      
New Single-family 111.2 113.9 NA 109.1 111.3 NA 185.8 105.3 112.6 106.8 116.9 125.3
  2.2% 2.5%   1.3% 2.0%              
  3.9% 5.7%         -39.1% -43.3% 6.9% -5.2% 9.5% 7.1%
New Multifamily* 22.6 22.5 NA 22.5 22.7 NA 51.2 35.9 23.7 22.1 23.7 26.7
  -1.4% -0.4%   -0.2% 0.5%              
  0.9% 1.9%         -8.1% -30.0% -34.0% -6.6% 7.2% 12.5%
New Residential** 133.8 136.4 NA 131.7 134.0 NA 237.0 141.2 136.2 128.9 140.6 151.9
  1.6% 2.0%   1.1% 1.7%              
  3.4% 5.0%         -34.3% -40.4% -3.5% -5.4% 9.1% 8.0%
Residential Improvements*** 122.7 124.2 NA 120.7 122.7 NA 120.7 112.7 112.5 116.8 123.3 129.1
  1.1% 1.3%   3.0% 1.7%              
  12.2% 7.2%         -13.5% -6.6% -0.2% 3.8% 5.6% 4.7%
Total Residential**** 256.4 260.6 NA 252.4 256.7 NA 357.7 253.9 248.7 245.6 263.9 281.1
  1.4% 1.6%   2.0% 1.7%              
  7.3% 6.0%         -28.5% -29.0% -2.1% -1.2% 7.4% 6.5%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Total starts may not equal sum of regions due to rounding.
(3) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
* New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
** New Residential = New Single-family + New Multifamily
*** Residential Improvements include remodeling, renovation and replacement work.
**** Total Residential = New Single-family + New Multifamily + Residential Improvements.
Total Residential may not equal the sum of its components due to rounding.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

Recent Comments