Weak Remodeling Activity Weighs on Residential Construction Spending

Total private residential construction spending increased 0.4% on a month-to-month basis during March 2013. After data revisions, first quarter nominal spending levels came in 2.3% lower than the final three months of 2012. With that said, private construction spending has bounced back by 33% since its cyclical low from nearly two years ago and has advanced more than 18% compared to March 2012.

Spending on new single-family housing notched its 21st month-to-month gain over the last 22 months, increasing 1.6% versus February, which itself was revised higher from 4.6% to 5.4% growth. On a year-over-year basis the new single-family category has expanded 38% and has managed to rise 78% above the cyclical low observed back in mid-2009. With the current NAHB forecast projecting growth of 26% and 28% for single family housing starts in 2013 and 2014, respectively, we expect spending activity to continue rising over the next two years.

New multifamily construction spending registered a modest gain of 0.3% in March, but the initial estimate of a 2.2% drop for February was revised to a smaller decline of 1.4%. Despite these two lackluster months, the first-quarter average was a 12% improvement from the fourth quarter of 2012 and the nominal dollar value of spending has skyrocketed 111% in less than two years. The forecast calls for a modest decline in multifamily starts during the second quarter of 2013 after what was likely an unsustainably large increase during the first quarter (primarily in March). Multifamily starts are expected to increase in every quarter thereafter, albeit at a slower and steadier pace, which in turn will yield further growth in nominal spending levels.

While the other two categories improved, home improvement spending was a source of weakness for the residential construction sector. Remodeling expenditures have declined in each of the last five months, with the March 2013 estimate coming in at a drop of 1.4% compared to February. The 3-month moving average, which tends to smooth out the month-to-month volatility in reported home improvement spending, points to a noticeable dip in remodeling activity after a healthy surge between spring and fall of last year. The most recent forecast calls for remodeling activity to rise modestly over the remainder of the outlook period. However, this downward trend in spending data plus the latest edition of NAHB’s Remodeling Market Index point to some risk to projected home improvement activity over the near term.

Residential Construction Spending Bounces Back in February

After three consecutive months of slight declines, private residential construction spending increased 2.2% on a month-to-month basis in February. Despite the sluggish readings from the prior 3 months, nominal spending on residential construction activity remained more than 20% above its year-ago level and roughly 36% higher than the cyclical low in mid-2011.

The new single-family home category continued to show strength in February, gaining 4.3% versus January. Compared to February 2012, spending on new single-family homes has risen 34%, but perhaps more importantly, the level of nominal construction spending has surged more than 73% since bottoming out in mid-2009. Spending activity will likely expand further over the next two years as the current NAHB forecast calls for single-family housing starts to increase 23% and 29%, respectively, this year and next.

The multifamily sector took a step back in February, with spending on new multifamily projects slipping 2.2% from January. In fact, this marks the first outright month-to-month decline for this category since September 2011. Still, the overall trend remains decidedly positive for new multifamily construction activity as the level of spending is 52% ahead of the pace in February 2012 and has more than doubled the August 2010 low point. After a likely modest retrenchment in the first quarter of 2013, the baseline forecast calls for consistent gains in multifamily starts through the end of 2014.

Home improvement spending improved slightly in February, gaining 0.5% versus the previous month and is 1.1% above the level from last year. Although this construction spending category is the most volatile and likely to be revised, the 3-month moving average suggests spending on remodeling activity has cooled over the past several months. Nonetheless, with existing home sales expected to register steady growth going forward, home improvement activity should see a similar pattern as sellers spruce up their homes for sale and/or buyers decide to make changes after they move into the home.

Confidence in New 55+ Home Sales Posts Another Year-Over-Year Gain

Builder confidence in the 55+ housing market improved the fourth quarter of 2012 compared to the same period a year ago, according to NAHB’s  latest 55+ Housing Market Indices (55+ HMIs).

There are separate 55+ HMIs for two segments of the 55+ housing market: single-family homes and multifamily condominiums.  Each 55+ HMI is based on a survey that asks if market conditions are good, fair or poor. An index number below 50 indicates that more builders view conditions as poor than good.

Although both 55+ HMIs remain below 50, both have improved significantly from a year ago.  The single-family index increased 10 points to a level of 28, the fifth consecutive quarter of year over year improvements.  Although multifamily condos remain the weakest segment of the 55+ housing market, the 55+HMI for condos also showed a substantial year-over-year increase, of six points to 19.

Meanwhile, the 55+ multifamily rental indices, which had already recovered substantially in 2011, remained relatively stable in the fourth quarter, although there was a slight pullback due to uncertainty about the low-income housing tax credit—the financial driver behind a significant portion of apartments built for this segment of the market. Present production dropped three points to 31, expected future production dipped one point to 34, current demand for existing units dropped four points to 38 and expected future demand fell five points to 39.

Like the overall housing market, the 55+ segment of the market is undergoing a slow but steady recovery, but there are some obstacles to a continued and stronger recovery.  While problems with tight credit conditions for buyers and obtaining accurate appraisals are still lingering, new problems like spot shortages and rising costs for labor, materials and lots are beginning to emerge.

For more information about NAHB’s 55+ HMI survey see www.nahb.org/55HMI

Positive Run Continues for Residential Construction Spending

Private residential construction spending jumped 2.2% on a month-to-month basis during December 2012. The initial estimate of a 0.4% gain for November was moved up slightly to a 0.6% increase, but the October number was pushed appreciably higher from 1.3% to 3.2%. Spending has registered nine uninterrupted months of growth, as well as 16 of the last 17 months showing expansion. The nominal dollar level of spending has now reached its highest point since late 2008 and the average from the last three months is 32% above the cyclical low.

Spending on new single-family homes decelerated to its slowest pace of month-to-month growth since the first quarter of 2012, rising 0.8% versus November. On a year-over-year basis, the nominal value of spending on new homes has risen over 28%. In addition, since bottoming out around the midway point of 2009, construction spending has surged 59%. The current NAHB forecast calls for single-family housing starts to expand for the entirety of the outlook period, but a slower pace of growth is anticipated during the first quarter of this year. They are expected to re-accelerate over the remainder of 2013, and thus we anticipate a similar pattern will likely occur for construction spending.

 

Construction spending on new multifamily projects jumped 6.2% during December 2012. Moreover, the initial estimate for November was revised higher from 0.5% to 1.8%, indicating spending activity finished the year strong. Of the three main categories of residential construction, multifamily has experienced the strongest rebound from its cyclical trough. Gains in spending have occurred in each of the last 15 months, with the latest month available representing the second largest percentage increase over this time period. On a year-over-year basis, the level of spending has skyrocketed more than 57% and has gained 97% from the bottom in August 2010.

Remodeling activity improved in December as spending climbed 2.9% from the prior month. Preliminary estimates for October and November were also revised higher, significantly higher in the case of October with a 1.9% decline turning into a 2.3% gain. The 3-month moving average points to a solid upward trend in home improvement spending and closed out 2012 at its highest nominal dollar value since September 2007. NAHB’s Remodeling Market Index (RMI) has offered a similar judgment on recent home improvement activity as the current and future market indicators have achieved their best readings since the first quarter of 2004.

Residential Construction Spending Rises for Eighth Consecutive Month

Spending on private residential construction activity ticked 0.4% higher on a month-to-month basis during November 2012. October’s preliminary reading of a 3% gain was bumped down to a 1.3% increase, but at the same time the initial estimate for September was pushed upward from 1.1% to 2.9%. Spending has increased in each of the last 8 months (and 15 of the last 16), rising to a 4-year high and nearly 33% above the trough during the third quarter of 2010.

New single-family home construction led the way in terms of spending growth among the private residential categories during November, posting a 1.3% increase versus October. Spending has climbed more than 29% above its nominal level of a year ago and stands 57% higher compared to the trough in mid-2009. A softer reading on single-family housing starts might point to some potential weakness in spending on this category going forward, but a 2-point increase in NAHB’s HMI and another strong reading on permit authorizations point to stronger construction activity (and by extension spending) over the near term.

The multifamily construction sector registered its slowest rate of month-to-month growth in nearly a year, but November’s 0.5% still marked the 14^th month in a row spending activity has increased. In the past year, nominal spending on multifamily projects has jumped 46% and stands nearly 83% higher than the low posted in August 2010. Starts of multifamily dwellings have averaged over 250,000 units for the past six months and approached 300,000 during the past two months. The current forecast calls for a modest slowdown in starts during the first quarter that will likely be followed by gains through the end of 2014–a pattern that can be expected for construction spending in this sector.

Spending on home improvements dipped 0.7% in November, adding to the 1.9% contraction (revised downward from a 1.8% gain) reported for October. Expressed as a 3-month average (so as to smooth out monthly volatility), nominal spending on remodeling activity has hovered around a 5-year high for the past few months. NAHB’s Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005. Our forecast calls for steady gains in remodeling activity through the end of 2014.

Residential Construction Spending Climbs to 4-year High

Private residential construction spending surged 3% on a month-to-month basis in October 2012. The initial estimate for September was revised downward from a 2.8% gain down to a 1.1% rate of growth; however, this was more than offset by an upward bump in the previously reported estimate for August from 1.2% to 2.8%. Following increases in 14 of the last 15 months, nominal spending on private residential construction activity is at its highest dollar value since late 2008. In addition, spending has risen 32% above the trough registered during the third quarter of 2010.

New single-family homes continued to post solid rates of growth, increasing 3.6% on a month-to-month basis for the second month in a row. Spending is also 29% above its year-ago level and has climbed 55% since bottoming out in mid-2009. This latest print on construction spending merely confirms the firming recovery for new single-family home construction that has been observed via housing starts and the HMI. With permit authorizations climbing rapidly and hitting their highest levels since the summer months of 2008, we anticipate this robust pace of growth in construction activity to continue over the near term.

The positive momentum continued for the multifamily sector, notching its 13th consecutive monthly increase with a 6.2% gain over September 2012. Overall, the dollar value of multifamily construction activity has surged more than 82% from its cyclical low observed just two years ago, due in part to strong growth in renter demand. Multifamily starts have averaged better than 230,000 units over the duration of 2012 and given that permits have averaged approximately 280,000 units during the same time period, multifamily construction spending will likely rise further in the coming months.

Home improvement activity expanded 1.8% during October 2012, offsetting the downward revision of a 1.2% decline posted for September. Using the 3-month moving average to iron out some of the volatility in this metric, nominal remodeling spending has reached its highest point in five years. NAHB’s own Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005.

Builder Confidence in the 55+ Market Improves in the Second Quarter

According to NAHB’s latest 55+ Housing Market Index (HMI) survey, builder confidence in the market for new 55+ single-family homes increased significantly in the second quarter of 2012.  Compared to the same period a year ago, the 55+HMI for new single-family homes more than doubled from 13 to 29.  (Because the survey results are not yet seasonally adjusted, numbers should only be compared year-over-year.)

The 55+ single-family HMI measures builder sentiment based on a survey that asks if current sales, prospective buyer traffic and anticipated six-month sales for that market are good, fair or poor (high, average or low for traffic).   An index number below 50 indicates that more builders view conditions as poor than good.

The 55+ single-family HMI is a weighted averages of current sales, traffic and expected sales.   Although the index components remain below the break-even point of 50, all have increased considerably from a year ago.  Present sales more than doubled (from 12 to 30), while expected sales for the next six months increased 17 points to 35 and traffic of prospective buyers rose nine points to 22.

Meanwhile, the 55+ multifamily rental indices recovered substantially last year, and are now holding steady: present production climbed three points to 31, expected future production increased three points to 32, current demand for existing units dropped one point to 42 and expected future demand decreased two points to 42.

Buyers are likely returning to the 55+ housing market as home prices begin to improve, helping to unlock some of the pent-up demand from 55+ consumers who have been sitting on the sidelines until they are able to sell their current homes at a more favorable price.

For more information about NAHB’s 55+ HMI survey see www.nahb.org/55HMI

Residential Construction Spending Rises in June

According to the Census Bureau, private residential construction spending increased for the third consecutive month in June, gaining 1.3 percent from an upwardly revised estimate for May 2012. The overall trend in private residential construction spending has been quite strong as the data expressed on a three-month moving average basis has risen in each of the last 9 months. With this month’s reading, nominal spending on private residential construction projects has reached its highest point since the beginning of 2009.

Construction spending on new single-family homes jumped 3 percent on a month-to-month basis and has staged nearly a 19 percent improvement from the same period a year ago. Moreover, since bottoming out during the second quarter of 2009, the nominal dollar value of spending on new single-family homes has climbed 38 percent. With both starts and permitting activity for new single-family homes still on the rise, additional gains in spending are expected over the very near term and should carry forward as the forecast calls for the pace of homebuilding activity to gain momentum as the calendar transitions to 2013.

Multifamily construction spending increased 3.4 percent during June and has experienced gains in each of the last 9 months. Overall, spending on new multifamily units has skyrocketed by 66 percent from its low point in August 2010. Construction activity is expected to level out over the remainder of 2012, but we anticipate multifamily starts to remain well above 200,000 through the end of next year. Home improvement spending slipped on a month-to-month basis in June, continuing its see-saw pattern of the last several months. Remodeling activity has remained in a relatively tight range for the past two years, but did provide some degree of stability during the housing market downturn while production of multifamily and single-family units fell rapidly.

One-Fourth of All Single-Family Homes are Built in a Strip from Delaware to Florida

Traditionally, the Census Bureau reports statistics on new residential construction (including housing starts) only for the four principal census regions: Northeast, Midwest, South and West.  The geography is limited by the way the sample for the Survey of Construction is drawn.  In 2009, the sample was redrawn in a way that allows for slightly more geographic detail (i.e., nine census divisions).  Although the added detail isn’t yet published on the Census website, it can be tabulated from a publicly available data set.

The public data set for residential construction in 2011 was released in June of this year.  It shows that more than one in four single-family starts occurred in the South Atlantic—a division that includes a strip of seven states on the east coast, stretching from Delaware to Florida—plus West Virginia and the District of Columbia.  Second is the West South Central Division (Arkansas, Louisiana, Oklahoma and Texas) with just over 20 percent.  Each of the other seven divisions accounted for less than 11 percent of single-family starts.

Since 2009, the South Atlantic increased its share of single-family starts from 23.1 to 25.7 percent, and the share also incresed in the Middle Atlantic (from 6.7 to 7.2 percent) and West North Central (6.7 to 7.3 percent).  The starts share in the other six divisions was either close to unchanged or down slightly from 2009, the last time NAHB published an article showing a division breakdown.

Historically, 2009 and 2011 were unusual in that fewer than 450,000 single-family homes were started in each of those years.  In comparison, from 1960 through 2007 single-family starts averaged about 1.1 million per year.  Caution is therefore required when interpreting recent statistics.  When such a large share of construction activity has disappeared, the current distribution of starts may be capturing a temporary effect (i.e., areas that were better able than others to resist the downturn) as well as longer-run geographic trends.

Private Residential Construction Reaches Three-Year High in May

The Census Bureau’s newest release on construction spending showed a 2.8 percent increase in spending activity for private residential projects in May 2012. On a three-month moving average basis, spending has increased during each of the last 8 months. This release also featured revisions to prior estimates dating back to January 2010. While the modest upswing in total private residential construction activity has been preserved, multifamily construction spending has been expanding at a slightly faster pace than before. Overall, this marks the highest nominal level of residential construction spending since early 2009.

New single-family construction activity expanded for the 12^th time in the last 13 months, gaining 1.8 percent versus April and nearly 15 percent from the May 2011 level of spending. Since bottoming out during the second quarter of 2009, spending on new single-family homes has risen more than 33 percent. Although the forecast calls for accelerating growth in homebuilding activity over the next several quarters, a sluggish labor market and tight lending standards are impediments to stronger gains in construction going forward.

As mentioned above, the revisions to historical data produced a modestly stronger recovery for new multifamily construction activity. Nominal spending increased 6.3 percent compared to April and has surged more than 50 percent on a year-over-year basis. Even with an unexpectedly weak reading in May, starts of buildings with 5+ units have averaged 211,000 on an annualized basis since the beginning of the year and permits have averaged 235,000 over the last 7 months. Therefore, new multifamily spending will likely recover further over the course of 2012. Home improvement spending improved for the second consecutive month, increasing 3.6 percent in May, coming on the heels of a 1.5 percent rate of growth in April. Although spending on remodeling held up better than new multifamily and single-family during the housing market downturn, remodeling activity has held within a generally close range since late 2010.