Mixed Signals from Housing

June 17, 2014

Census and HUD reported a decline in May housing starts and permits, but the headline numbers do not tell the whole story. First, the driver in the declines in both starts and permits was multifamily apartment construction, which was down to 376,000 starts (-7.6%) and to 372,000 permits (-19.5%). But the three-month moving average for multifamily starts is still the best since February 2006 and the decline is more the result of an extraordinarily high April. The same trend was evident in the multifamily permits, which adjusted downward after scoring a seven year high in April.

Second, single-family permits were up 3.7% to 619,000 (seasonally-adjusted annual rate), the highest since November 2013 and roughly equivalent to the output for all of 2013. The increase in single-family permits was true for all four regions adding support to the continued modest single-family expansion forecasted by NAHB.

The decline in single-family starts is likely a combination of factors including general conservative behavior of the builders that remains after a six year decline in housing production. Builders also continue to find low supplies of developed lots and construction crews. The supply chain difficulties have caused builders to postpone and lengthen construction schedules.

The number of single-family homes under construction has remained relatively steady at 340,000 for the past six months and the number completed just above 600,000 for the same period. The steadiness is evidence of builders continued conservative approach to adding inventory and the builders’ read of the same conservative nature of potential home buyers. As the economy continues to expand, consumer confidence in housing will return and the housing market will continue its modest expansion.

 

Single-family Homes Under-Construction and Completed


Single-Family Built for Rent Market Remains Off Recent Market Highs

May 26, 2014

Single-family starts built-for-rent were effectively unchanged at 4,000 starts for the first quarter of 2014. While the market share of built-for-rent single-family units remains elevated, the share and count of starts appear to be declining off post-Great Recession highs.

According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design and NAHB analysis, the market share of single-family homes built-for-rent, as measured on a one-year moving average, stands at 3.3% for the first quarter of 2014. This remains higher than the historical average of 2.8% but is down from the 5.8% registered a year ago.

SF built for rent_May 14

With the onset of the Great Recession, the share of built-for-rent homes rose, with a dip in the percentage during the homebuyer tax credit period.

Despite the elevated market concentration, the total number of single-family starts built-for-rent remains fairly low – only 20,000 homes started during the last four quarters. It appears the market is returning to historical averages after recent peaks in this form of construction.

Of course, the built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 29% according to the 2011 American Community Survey. The reason for this is that as single-family homes age, they often transition to the rental housing stock.


Slight Rise in Owner/Contractor Built Housing

May 21, 2014

The market share of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, was effectively unchanged on a quarter-over-quarter basis at the start of 2014.

NAHB’s analysis of Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicates that the number of starts of this type of custom home building rose from 25,000 at the start of 2013 to 27,000 for the first quarter of 2014. This slight change marks an effectively flat market given statistical confidence intervals associated with the data.

In recent years, 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 one-year moving average, the market share is now 22.8%, down from a cycle high of 31.5% set during the second quarter of 2009.

Owner_contractor built_May 14

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 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.


Townhouse Market Share Weakening with Drop in First-Time Buyers

May 21, 2014

Total townhouse construction declined on a year-over-year basis during the first quarter of 2014.

According to NAHB analysis of Census data of Starts and Completions by Purpose and Design, single-family attached starts totaled 13,000 for the quarter, compared to 15,000 during the first quarter of 2013. Over the last four quarters, townhouse construction starts totaled 66,000, down from the 72,000 total for the four quarters prior to this period.

Using a one-year moving average, the market share of townhouses now stands at 10.7% of all single-family starts, effectively unchanged from 11.1% for the prior quarter.

Townhouse_May 14

The peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when it reached 14.6%. This high point was set after a fairly consistent increase in share beginning in the early 1990s.

Despite the drop in market share during the Great Recession, I expect the share for townhouse construction to increase in coming years – with occasional ups and downs. For example, recent weakness in production may be associated with reduced levels of first-time homebuyers.

Nonetheless, the prospects for townhouse construction over the long run are positive given large numbers of homebuyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.


Average New Multifamily Home Size at the Start of 2014

May 20, 2014

After rising during the boom years and falling during the Great Recession, the average size of newly built, multifamily units remains close to levels seen a decade ago. As multifamily developers build more for-sale housing units in the years ahead, the average size of multifamily units is likely to rise.

According to fourth quarter data from the Census Bureau and NAHB analysis, the average square footage of multifamily housing construction starts was 1,182. The median was 1,023.

MF_avg size_May 14

Because the quarterly data are volatile, it is worth examining the numbers on a one-year moving average basis. For the first quarter of 2014, the one-year moving average for the multifamily size average was 1,189 square feet, while the median was 1,082. These measures are only a few percent higher than cycle lows.

However, these current metrics are very close to the typical data from the 2001-2003 period, when the average was 1,180 and the median was 1,093.

The typical size of a new multifamily unit is well below the averages/medians recorded during the boom years, when the share of for-sale multifamily was considerably higher. The share of multifamily housing starts built for-rent fell to a historical low of 47% during the third quarter of 2005. It is currently (93%) above the approximate 80% share recorded during the 1980-2002 period due to the rise in rental demand following the housing crisis.

MF built for rent_May 14

Thus, the reason for some of the recent change in multifamily average size is due to market mix. Renters tend toward smaller units than owner-occupiers. In 2012, for example, the median size of all multifamily units completed was 1,098 square feet. However, for rental apartments the median was 1,081, while it was a larger 1,466 for condos.

As the for-sale share of multifamily returns back to historical norms in the years ahead, the size of a typical newly built multifamily housing unit will rise as well.


Size of Typical New Single-Family Home Rises at the Start of 2014

May 19, 2014

The average size of newly built single-family homes increased during the first quarter of 2014, with much of the recent trend in increasing size likely due to an atypical mix of buyers.

According to first quarter 2014 data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis, average single-family square floor area increased from 2,656 to 2,736 square feet, while the median rose from 2,465 to 2,483.

SF_avg size_May 14

On a less volatile one-year moving average, the trend of increasing size during the post-recession period is clear. Since cycle lows and on a moving average basis, the average size of new single-family homes has increased 13% to 2,685 square feet, while the median size has increased more than 17% to 2,471 square feet.

As noted in NAHB’s analysis of 2012 Census construction data, the recent rise in single-family home sizes is consistent with the historical pattern coming out of recessions. Home sizes fall into the recession as some homebuyers cut back, and then sizes rise as high-end homebuyers, who face fewer credit constraints, return to the housing market in relatively greater proportions. This pattern has been exacerbated in the last two years due to market weakness among first-time homebuyers.


Starts and Permits over One Million

May 16, 2014

Housing starts exceeded one million for first time since last year and housing permits were over one million for a third consecutive month. The increases were almost entirely in multifamily rental construction.
Multifamily construction soared 40% to 423,000 starts, the highest since January 2006 and permits also rose 20% to 478,000, the highest in almost six years. Multifamily starts were particularly strong in the Midwest where they more than doubled from an unusually low 42,000 to 100,000.

Single-family starts increased 5,000 (on a seasonally-adjusted annual basis) to 649,000 from an upwardly revised March that was 635,000. Single-family permits rose 2,000 but also from an upwardly revised March that was 592,000. Single-family starts were unchanged in the Northeast and down 2.6% in the South while rising 5.5% in the Midwest and 5.8% in the West.

The rise in multifamily is indicative of the continued demand for rental apartments by young, newly-formed households. Most of those households are renting rather than the normal trend of a quarter buying a first home. In addition, most new homes are sold to trade up buyers and those present home owners are hesitant to sell for several reasons. They refinanced into a low rate mortgage and don’t want to give it up. They have yet to see sufficient equity build up even with rising home prices to feel comfortable selling and buying. They can’t qualify for a mortgage. Or, they still have concerns about their own financial future.

Until the uncertainties of selling a current home are clarified and until economic growth is more consistent and sufficient, current home owners will not move and new home sales will continue their weak recovery. The underlying economic expectations are positive as most of the clouds of the recession dissipate. NAHB expects 2014 to see a pick up and new home sales and starts to perform better in the second half.

Housing Starts


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