June 4, 2013
The market share of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, fell at the start of 2013.
Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicate that the number of starts of this particular type of custom home building was down 4% year-over year in the first quarter, totaling 25,000.
While the decline in starts was negligible, as the rest of the single-family construction market expanded, the market share of owner and contractor built housing has fallen significantly. As measured on a 1-year moving average, the market share has fallen to 22.5%, down from a cycle high of 31.5% set during the second quarter of 2009.
The onset of the housing crisis and the Great Recession interrupted a 15-year long trend away from homes built on the eventual owner’s land. However, as housing production slowed in 2006 and 2007, the share of this not-for-sale new housing increased even as the number of starts declined. The share increased because the credit crunch made it more difficult for builders to obtain AD&C credit and for home buyers to obtain mortgage financing, thus producing relatively greater production declines of for-sale single-family housing.
June 3, 2013
Total private residential construction spending decreased a negligible 0.1% on a month-over-month basis during April 2013, with the net decline driven by a further decrease in improvement spending. However, total housing-related spending is up 18.8% from April 2012 and has increased 35.7% from the cycle low point in 2009.
Spending on new single-family housing has now increased for 22 of the last 23 months, increasing 1.4% over March. On a year-over-year basis new single-family expenditures have grown 38.6% and are up 81.9% from the cycle low pace set in mid-2009.
New multifamily construction spending registered a 3.4% gain in April and has increased 48.6% measured year-over-year. Multifamily construction is up 123% from the cycle low recorded in mid-2010.
While single-family and multifamily construction continue to improve, home improvement spending has been and remains a source of weakness for the residential construction sector. Remodeling-related expenditures have declined significantly over the course of 2013. Improvement spending was down 3.3% in April and is down 7% from April 2012. Rising existing home sales point to increases later in the year.
June 3, 2013
NAHB Chairman Rick Judson will be testifying on June 4 on the state of the residential construction sector before the House Energy and Commerce Committee. His statement highlights the state of the housing industry, its importance for economic growth, and fiscal and policy challenges the sector faces.
As part of that analysis, NAHB used data from the recently released 2011 Census Survey of County Business Patterns to map the location of employees of home building and remodeling firms. The data represent a snapshot of just a portion of the home building industry, as they do not include residential trade contractors. Recent BLS data indicates that of 2.132 million total home building employment, 586,000 are builders and 1.545 million residential specialty trade contractors.
Nonetheless, the mapping of the data illustrates the geographic reach of the industry, which can be found in every part of the nation. In general, the count of builders and remodelers matches the distribution of the population as a whole, with certain growth areas showing relatively greater concentration of industry employment.
May 31, 2013
Measures of consumer confidence rose in May. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index increased by 10.6% on a monthly seasonally adjusted basis to 84.5. The final reading of consumer sentiment was revised up from the preliminary reading of 83.7 that was released earlier in the month. Similarly, the Conference Board reported that its Consumer Confidence Index rose by 10.4% on a monthly seasonally adjusted basis in May to 76.2. Also, the original April reading, 68.1, was revised up to 69.0. The increase in Consumer Confidence reflected growing optimism by consumers in both their present situation and in their expectations for the future. According to the Conference Board, the Consumer Confidence – Present Situation Index rose by 9.4% over the month while the Conference Confidence – Expectations Index grew by 11.0%.
Despite the spike, consumers’ growing optimism about the future might not result in additional spending. As chart 2 illustrates, the proportion of respondents expecting an improvement in employment and business conditions grew substantially on net. However, the change in the share of consumers expecting their income to grow over the next 6 months rose slightly on net. Net growth is calculated by subtracting the share of consumers expecting a “bad” outcome from the portion of respondents expecting a “good” outcome. Those expecting conditions to remain the same are excluded.
The increase in the net share of consumers expecting an increase in their income reflected both a decline in the share expecting a decrease in their income over the next 6 months and a drop in the percent of consumers expecting an increase in their income over the next 6 months. However, the percentage point decline in the portion expecting their income to fall was greater than the decline in the share expecting their income to increase. The share of consumers expecting their income to decrease in the next 6 months fell by 0.6 percentage points. However, the percentage of respondents that expect their income to increase in the next 6 months also fell, by 0.2 percentage points.
In contrast, the net change in the share of respondents expecting more jobs rose by 4.6 percentage points as the share expecting an increase in employment rose by 2.5 percentage points and the proportion expecting a decrease in employment fell by 2.1 percentage points. Similarly, the net change in the percentage of consumers expecting business conditions to improve rose by 4.7 percentage points as the share expecting improving business conditions rose by 2.0 percentage points and the portion expecting worsening business conditions fell by 2.7 percentage points.
May 31, 2013
The Multifamily Production Index (MPI) inched down two points to an index level of 52 for the first quarter of 2013. This marks the fifth straight quarter with a reading over 50.
The MPI measures builder and developer sentiment about current conditions in the apartment and condominium market on a scale of 0 to 100. The index and all of its components are scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
The MPI provides a composite measure of three key elements of the multifamily housing market: construction of low-rent units, market-rate rental units and “for-sale” units, or condominiums.
In the first quarter of 2013, the MPI component tracking builder and developer perceptions of market-rate rental properties dropped four points to 61, but has been above 60 for seven consecutive quarters–the longest sustained period of strength since the inception of the index in 2003. For-sale units dipped four points to 42, while low-rent units rose two points to 55.
The Multifamily Vacancy Index (MVI), which measures the multifamily housing industry’s perception of vacancies, rose seven points to 38. With the MVI, lower numbers indicate fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been at a fairly moderate level throughout 2011 and 2012.
Historically, the MPI and MVI have performed well as leading indicators of U.S. Census figures for multifamily starts and vacancy rates, providing information on likely movement in the Census figures one to three quarters in advance.
May 30, 2013
The National Association of Realtors (NAR) released their pending home sales index (PHSI) for April. The PHSI tracks sales contracts signed, the precursor to contracts being closed, and is typically a good predictor of existing homes sales (i.e., contract closings) in the following month or two.
The PHSI advanced 0.3% in April from March and stands 10.3% higher than in April of 2012. The continuing advance in contracts signed in April suggests sales in May will continue their climb.
After hitting bottom at an annual pace of roughly 3.5 million sales in July 2010 following the expiration of the home buyer tax credit, existing home sales have recovered, reaching a pace of nearly 5.0 million in April. As the housing market continues to improve, we expect the pace of existing home sales to continue rising moderately reaching 5.2 million by the end of 2014.
May 30, 2013
The Bureau of Economic Analysis (BEA) second estimate of real GDP growth for the first quarter of 2013 is 2.4%, revised down from 2.5% in the advance estimate. Stronger personal consumption expenditures (PCE) and less drag from weaker imports were offset by weaker growth in inventory investment, exports and state and local government spending than in the initial estimates. Real GDP growth was 0.4% in the fourth quarter of 2012.
We still expect growth weakened in the second quarter and will continue to weaken in the third before turning up in the fourth quarter of the year. Residential fixed investment (RFI), home building’s contribution to GDP, has rebounded beginning in late 2011 and is expected to continue to make positive contributions to growth despite the weakening broader economy.
May 29, 2013
One factor holding back an even stronger rebound in home construction is the declining availability of acquisition, development and construction (AD&C) loans. While it appears the period of dramatic declines of the outstanding stock of AD&C loans ended in 2012, there has not yet been a robust expansion of lending consistent with current demand for home building.
According to data from the FDIC, the outstanding stock of residential AD&C loans made by FDIC-insured institutions fell by $1.5 billion during the first quarter of 2013 (i.e. the retirement of old debt exceeded the issuance of new debt by $1.5 billion), a quarterly drop of 3.7%. It is possible that the drop in the first quarter was due to seasonal-related declines. The new data marks six consecutive quarters of the outstanding stock of residential AD&C loans remaining in the $40 to $44 billion range.
It is worth noting the FDIC data report only the stock of loans, not changes in the underlying flows, so it is an imperfect data source. Nonetheless, the rough stabilization of the stock value over the last year and a half suggests overall improving conditions for AD&C lending.
The current stock of existing residential AD&C loans (the blue area on the graph below) of $40.7 billion now stands 80% lower (denoted by the red line) than the peak level of AD&C lending of $203.8 billion reached during the first quarter of 2008.
The FDIC data reveal that the total decline from peak lending for home building AD&C loans continues to exceed that of other AD&C loans (nonresidential and some land development). Such forms of AD&C lending are off a smaller 63% from peak lending. Some land development loans connected to home building are grouped in this other class. NAHB survey data suggest land development loans face tighter lending conditions than loans for residential construction purposes.
Despite the recent stabilization in residential AD&C lending, there exists a lending gap between home building demand and available credit. Since the beginning of 2007, the dollar value of single-family permitted construction is down 41%. During this same period, home building lending for AD&C purposes is down 79%.
This lending gap is being made up with other sources of capital, including equity and investments from non-FDIC insured institutions or lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans.
May 28, 2013
Standard and Poor’s reported that house prices rose in March. According to the most recent release, the S&P/Case-Shiller House Price Index – National Index grew by 10.2% on a year-over-year not seasonally adjusted basis. Following 19 consecutive months of year-over-year declines, house prices registered their tenth consecutive year-over-year increase in March. House price growth in Phoenix had the largest annual increase at 22.5%, followed by San Francisco with 22.2% and Las Vegas with 20.6%. Meanwhile, house prices in New York rose by 2.6% on a year-over-year not seasonally adjusted basis.
Standard & Poor’s calculates tiered house price indexes for 17 of the 20 MSAs included in the House Price Index – 20 City Composite. Tiered house price indexes for the Cleveland MSA were not available in March 2013. Tiered indexes measure changes in the value of existing single-family houses in three price tiers – low, middle, and high. Each tier represents approximately one-third of the sales transactions in each respective market. Over the past 12 months, house prices in the low tier have generally outperformed house prices in the middle tier and the high tier. As Chart 1 illustrates, the year-over-year increase in the low tier house price index has exceeded the annual percent growth in the middle- and upper-tier house price indexes for every MSA except Tampa.
The faster growth displayed by the low tier house prices in March 2013 relative to the middle and high tier is a continuation of the strong rebound exhibited by these house prices following the housing bust. Since reaching its respective trough, house price growth in the low tier has exceeded house price growth in both the middle and upper tier in each of the 16 MSAs except Seattle. In Seattle, the rebound in middle tier house prices has slightly exceeded the recovery of house prices in the low tier. However, the rebound in low tier house prices exceeds that of the high tier. A previous post noted that the strongest house price recoveries have typically taken place in geographic areas where house prices declined the most. A similar phenomenon is occurring across house price tiers. According to Chart 3, house price declines that took place following the housing bust were deepest in the low tier in every MSA for which data is available.
For full histories of the composites and 20 markets included in the Case-Shiller composites, click here cs.
May 28, 2013
A recent NAHB survey reveals that professional remodelers have begun to see some shortages of directly employed labor as well as of subcontractors. The findings come from the Labor Availability Report EXTERNAL for the first quarter of 2013, which asked remodelers about shortages for 12 different trades:
- Rough Carpenters
- Finished Carpenters
- Framing crews
- Weatherization workers
- Building maintenance managers
In terms of direct labor, results show that at least 35 percent of remodelers report shortages of finished carpenters, rough carpenters, and framing crews, while 27 percent report shortages of bricklayers/masons. When it comes to subcontractors, over 35 percent also report problems finding finished carpenters, rough carpenters, and framing crew subs, while 20 percent to 30 percent report sub shortages of bricklayers, painters, and roofers.
A similar survey was sent to single-family builders in March 2013. Comparing both sets of results shows that, in general, builders are more likely to be experiencing labor shortages than remodelers, particularly for framing crews (both directly employed and subs) and electricians. The only trade for which remodelers are more likely than builders to report shortages is finished carpenters.
Another way to compare results between remodelers and builders is by calculating the average share of each group reporting any shortage across all 12 trades. This exercise shows that 23.2 percent of remodelers report shortages of directly employed labor, compared to 27.8 percent among builders. Similarly, 24.5 percent of remodelers report a shortage of subcontractors, compared to 30.7 percent among builders.
It’s important, however, not to overstate the results. While some remodelers are seeing shortages of some types of labor, still more than half of them report no shortages for any of the types of labor listed. Yet given the soft start of the current housing recovery, it is concerning to see any labor shortages this early in the game.
 Builders and remodelers do not always use the same type of labor, of course. Remodelers not working on additions may not need framing crews, for example, which could account for the lower shortages among remodelers.