Green Building Features

July 2, 2014

A focus on energy efficiency is the most important development and design strategy that is making new housing greener according to a recent industry survey.

McGraw Hill Construction’s (MHC) data and analytics team surveyed a set of NAHB single-family and multifamily members in 2013. The survey found that 62% of single-family builders and 54% of multifamily developers are doing more than 15% of their projects as green. For single-family, 19% of builders are doing more than 90% projects as green.  The survey indicates that increasing consumer interest is a reason for growth in this area. MHC defines a green homes as “one that is either built to a recognized green building standard or an energy- and water-efficient home that also addresses indoor air quality and/or resource efficiency.”

green features

According to the report, 75% of single-family and 84% of multifamily builders indicated that improved energy efficiency was a factor making their projects more green than two years ago.

The second leading factor was improved indoor environmental quality. 58% of single-family builders and 55% of multifamily developers cited this as a reason why their current projects are more green.

Other leading factors include more water conserving products/practices and material conservation and recycling.

However, the data from the survey also show that only 11% single-family builders and remodelers are constructing homes that are greener in 2013 than in 2011. This result makes sense given the start and stop nature of the housing recovery and tight credit conditions of recent years.

Eye on the Economy: Builder Confidence and Home Sales on the Rise

June 25, 2014

Housing news turned positive this week as spring gave way to summer. Future data will confirm whether the recent turn in momentum reflects a return to the improving trend that was in place before the end of 2013, but early signs are encouraging.

New single-family home sales reached their highest pace in six years in May. According to estimates from the Census Bureau and HUD, new home sales were at a seasonally adjusted annual rate of 504,000 in May, a gain of 18.6% over a slightly downwardly revised April (425,000). The May 2014 rate of sales is the highest since May 2008 and is a significant increase from the winter low point for sales in March (410,000).

The May pace of sales was certainly an improvement over the soft patch experienced from February through April. The most recent gains are likely due to a payback for weather-related declines during the winter, so future months will indicate whether a better trend has taken hold. But encouraging signs like better jobs numbers are consistent with this outcome.

Another improved indicator is the NAHB/Wells Fargo Housing Market Index (HMI), which rose four points in June to 49. This is just shy of the 50 mark, indicating at least as much optimism as pessimism among single-family home builders. The index dipped 10 points to 46 in February from a sustained above-50 mark for eight months and remained near there for four months. The June gains were experienced in all the components of the HMI: current sales, expected sales and traffic.

Alongside the positive new home sales report was the May existing home sales measure. The National Association of Realtors reported that existing home sales were up 4.9% from April to May. While still 5% lower year over year, the 4.89 million seasonally adjusted annual rate confirmed a turn in the decline that had been in place since the middle of 2013. Year-over-year declines in existing home sales, which distinguish this market from the growing new home market, are likely due to recent drops in distressed and investor purchases, as well as the 2014 expiration of a tax rule connected to short sales.

The one negative housing report in recent weeks was construction starts. The Census Bureau and HUD estimated that total housing starts declined 6.5% in May. Single-family starts were down 5.9%, while multifamily construction in properties with five or more units was down a larger 8.3%. The declines were a result, in part, to April’s numbers, where were among the highest since the end of the recession. On a year-over-year basis, the May pace of single-family construction was 4.7% higher and 19.2% higher for five-plus multifamily building.

Home price appreciation appears to be slowing after the strong gains of the past year or two, propelled by increases in areas that experienced some of the largest price declines during the recession. House prices grew by 10.8% between April 2013 and 2014, according to the S&P/Case-Shiller 20-City Composite Home Price Index, which was less than the 12-month growth rate of 12.4% seen in March. Similarly, the Federal Housing Finance Agency’s Purchase-Only Index rose 6% compared to 6.4% in March. Both indices show that annual house appreciation slowed from December to April and suggest the housing market may be returning to its long-run growth trend.

Consistent with the weak housing reports from the winter and early spring, the final estimate of first quarter GDP indicated that the economy contracted as a 2.9% rate, the worst quarter in five years. Besides disappointing investment numbers, personal consumption growth was anemic and exports displayed particular weakness. Part of the poor performance was weather related and other one-off factors. Second quarter GDP growth should reflect some payback for deferred economic activity and post a growth rate higher than 3%.

Common measures of general prices and inflation, moved in opposite directions in May. Producer prices declined 0.2%, after notable increases of 0.5% and 0.6% for March and April respectively. Among building materials, softwood lumber prices rose 1% in May from April. Prices are 28% above the average level over 2011. OSB prices have flattened out in 2014, declining 0.7% in May. Prices are 23% above the average level over 2011. Gypsum prices declined 0.7% in May, 41% above the average 2011 mark.

In contrast, consumer prices in May experienced the largest monthly increase since February 2013, rising 0.4% on a seasonally adjusted month-over-month basis and 2.1% year over year. The increase was broad, affecting many items found in the consumer basket such as energy, food and shelter. The NAHB constructed real rent index increased nominally in May. Over the past year, real rental prices rose by 1.1%.

The Federal Open Market Committee, the Federal Reserve’s monetary policy committee, announced this week that the pace of asset purchases (quantitative easing) will be reduced by another $10 billion to $35 billion per month. The federal funds rate will continue to remain at the current near zero level for a “considerable time” after asset purchases have concluded.

In analysis news, economists at NAHB mapped the change in county-level housing permit activity for 2013. Overall, 1,807 counties and county equivalents saw an increase in the number of single family permits issued over the prior year while 858 saw a decrease. According to data from Hanley-Wood, there was some movement among the rankings of the top ten publicly traded home builders in 2013, although D.R. Horton maintained the top spot with more than 25,000 closings.

Additionally, NAHB economists discussed land banking and new mortgage application data for new homes. Lastly, data for the first quarter of 2014 revealed that property taxes, the top revenue source for state and local government, made up 40.3% of receipts from major sources over the last four quarters – an important reminder of the role real estate plays in local economies.

Eye on the Economy: Slow Progress after a Tough Quarter

June 12, 2014

The overall economy slowed at the start of 2014, which took a toll on housing and economic activity. According to the Bureau of Economic of Analysis, real GDP contracted at a 1% seasonally adjusted annual rate during the first quarter. Growth would have been slightly positive absent a decline in business inventory investment. However, this drawdown sets the stage for more stable growth for the rest of 2014.

An example of improved economic news from the second quarter was the May employment report. According to the Bureau of Labor Statistics, payroll employment improved by 217,000 for the month. In fact, the month of May was the first time that total employment (138.365 million) surpassed the prior pre-recession peak. Of course, given population growth, the economy continues to suffer from a lack of jobs, which in turn is holding back housing demand.

Home builders and remodelers have added 106,000 jobs in the last 12 months. The seasonally adjusted construction sector unemployment rate now stands at 8.9%, down from 11.2% a year ago and 22% at the post-recession peak. Labor data from April indicate that the number of open construction sector jobs, which has been elevated for the last two years as construction expanded, has declined over the start of 2014 to a count of 94,000. Nonetheless, the open rate remains higher than any period prior to 2013.

In addition to labor shortages, an important industry headwind remains the lack of building lots. A recent NAHB survey indicates that 59% of builders report low or very low lot supplies in their market. This is the highest rate of “low” responses since the question was first posed in 1997 and is notable given that housing starts remain below normal levels of market production. NAHB surveys continue to suggest relatively tighter conditions for land acquisition and development loans (in contrast to construction loans) used to finance lot development, although recent FDIC data suggests that lending is increasing. For example, over the last four quarters the stock of residential AD&C loans has increased by 12%.

Overall, the housing market continues to improve, but progress is slow going. The NAHB/First American Leading Markets Index remained at .88 for the nation from May to June but was up 6 points from .82 in June 2013. The index measures progress back to and beyond normal economic and housing markets for 351 metropolitan areas. Three of 10 metros did see a monthly increase in their individual indexes and 83% have seen an increase in the past year.

Markets already past their last level of normal are concentrated in energy-producing markets and were more stable. At the other end of the spectrum, markets still only two-thirds of the way back to normal are the industrial Midwest or in the sand states most harmed by the boom and bust. Their slow progress is primarily the result of the slow single-family housing market. Single-family housing permits are only at 43% of their last normal market in the early 2000s.

Recent Federal Reserve data also reflect the progress in housing in recent years. According to the Flow of Funds data, home owner equity has reached a level last experienced in 2007. In the last quarter, home owner equity grew by $795 billion.

Despite low interest rates, housing demand has lagged in 2014. For example, the National Association of Realtors Pending Home Sales Index is down 9% on a year-over-year basis. However, new home sales have fared better than existing home sales in recent months. According to the Federal Housing Finance Agency, the average effective interest rate on new home sales was 4.33% in April.

Construction spending grew in April by a slight 0.1%. Single-family spending was up 1.3%, and multifamily increased 2.7% month over month. The relatively strong performance by the multifamily sector is consistent with the most recent NAHB Multifamily Production Index, which increased three points to 53 during the first quarter. This marks the ninth consecutive quarter of a reading above 50. Readings above a level of 50 indicate that more respondents report improving conditions than don’t. Market absorption data for rental and for-sale multifamily remained strong at the start of 2014 as well.

In analysis news, NAHB economists recently published membership census data investigating the characteristics of builder members. And a new tool was made available that allows access to the latest Census data by geographic areas that are consistent with local home builder association jurisdictions or market area.

Stock of AD&C Loans Up 12% Over Last Four Quarters

May 28, 2014

One factor holding back a stronger rebound in home construction has been the tight availability of acquisition, development and construction (AD&C) loans. However, recent data confirm that net lending is on the rise.

According to data from the FDIC and NAHB analysis, the outstanding stock of 1-4 unit residential AD&C loans made by FDIC-insured institutions rose by $1.952 billion during the first quarter of 2014, a quarterly increase of 4.46%.

The first quarter expansion of the stock of AD&C loans marked the fourth consecutive quarter of increase. Since the end of the first quarter 2013, the stock of outstanding home building AD&C loans is up 12.2%, an increase of just under $5 billion.

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 consistent growth in the outstanding stock of AD&C loans is a positive development. NAHB surveys of builders also suggest improving lending conditions.

However, lending remains much reduced from years past. The current stock of existing residential AD&C loans (the blue area on the graph below) of $45.7 billion now stands 77.6% 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, land development, and multifamily). Such forms of AD&C lending are off a smaller 61.6% from peak lending. This class of AD&C loans has now registered three quarters of significant increases (1.5% for the first quarter of 2014).

Some land development loans connected to home building are grouped in this other class. NAHB survey data indicate land development loans face tighter lending conditions than loans for residential construction purposes.

Despite the recent uptick in residential AD&C lending, there exists a lending gap between home building demand and available credit. This lending gap is being made up with other sources of capital, including equity, investments from non-FDIC insured institutions and lending from other private sources, which may in some cases offer less favorable terms for home builders than traditional AD&C loans.

Eye on the Economy: New Home Sales and Starts Post Gains in April

May 28, 2014

Housing data for April offered positive news as the traditional spring housing season began with the pace of home building and new home sales increasing for the month.

The monthly rate of housing construction starts exceeded 1 million for first time since last year and housing permits were over 1 million for a third consecutive month. However, the monthly increases were almost entirely in multifamily rental construction. Single-family starts increased 5,000 on a seasonally adjusted annual basis to 649,000 from an upwardly revised March of 635,000.

Multifamily construction soared 40% to an annual rate of 423,000 starts, the highest since January 2006. Multifamily starts were particularly strong in the Midwest, where the pace more than doubled perhaps due to weather effects. Rental demand remains strong. Recent consumer price data, for example, indicate that inflation adjusted housing rents are up 1.2% year over year.

The pace of new single-family home sales increased 6.4% in April to a seasonally adjusted annual rate of 433,000, virtually matching the first quarter average of 434,000. The 26,000 monthly increase was entirely due to a 27,000 jump in sales in the Midwest region. However, this increase was not outside the survey’s regional confidence interval.

A positive component of the April new home sales report was a continued increase in inventory, now up to 192,000 homes for sale from a low of 142,000 in July 2012. Builders continue to experience supply-chain difficulties, but the slow increase in inventory indicates some ability to expand construction.

Existing home sales increased 1.3% in April but was down 6.8% from the same period a year ago. The National Association of Realtors (NAR) reported April 2014 total existing home sales at a seasonally adjusted rate of 4.65 million units combined for single-family homes, townhouses, condominiums and co-ops, up from 4.59 million units in March. Total housing inventory jumped 16.8% in April to 2.29 million existing homes due to typical seasonal patterns.

First-time buyers continue to display weakness in the existing home sales market, comprising 29% of April 2014 sales, down from 30% in March and unchanged from last April. The January first-time buyer share of 26% was the lowest since NAR began reporting that share monthly in October 2008.

Data for the first quarter of 2014 provide additional detail concerning the home construction market. Total townhouse construction declined on a year-over-year basis in the first quarter due in part to first-time buyer weaknesses. According to NAHB analysis of Census data, 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.

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 indicates that the number of starts of this type of building rose from 25,000 at the start of 2013 to 27,000 for the first quarter of 2014.

The average size of newly built single-family homes increased during the first quarter of 2014, with much of this ongoing multiyear trend of increasing size likely due to the greater proportion of move-up and higher income new home buyers. According to first-quarter 2014 data from the Census and NAHB analysis, average single-family floor area increased from 2,656 to 2,736 square feet, while the median rose from 2,465 to 2,483. Since cycle lows and on a three-month 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.

While multifamily construction continues to expand due to rising rental demand, single-family starts built for rent were effectively unchanged at 4,000 starts for the first quarter of 2014. The market share of built-for-rent single-family remains elevated, but the share and count of starts appear to be declining off post-Great Recession highs, with the market share, as measured on a one-year moving average, standing at 3.3% for the first quarter of 2014. This is higher than the historical average of 2.8% but is down from the 5.8% registered a year ago.

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 due to lack of typically larger condo construction. According to fourth quarter data from the Census Bureau and NAHB analysis, the average unit size for multifamily housing construction starts was 1,182 square feet. The median was 1,023. These current estimates are very close to the typical data from the 2001-2003 period.

As National Home Remodeling Month in May ends, NAHB continues to publish data and analysis concerning home improvement trends. This includes estimates of spending on improvements to owner-occupied housing by ZIP code. On average, total spending on improvements in a ZIP code is projected to be about $5.1 million in 2014.

The top five total-spending ZIP codes are all in Maryland, Texas, or Illinois. Each of these top five areas contains at least 15,000 owner-occupied homes and home owners who average at least $145,000 in income and are 60% or more college educated.

NAHB survey data recently revealed the leading green products used by remodelers. Nearly 9 out of 10 remodelers surveyed said they commonly used low-e windows during the past year. Next on the list were high efficiency HVAC systems and programmable thermostats at 70% each, closely followed by ENERGY STAR appliances at 69%.

Finally, industry survey data was published that examines consumer preferences when selecting an individual contractor for home improvement projects. “Reputation for quality construction” easily came in first, ranked most important by 45% of customers—over twice the “most important” percentage for any other attribute on the list. The survey also revealed that industry professional designations, such as NAHB Certified Graduate Remodeler and others, were important to home owners when selecting a service provider.

While weather played a significant negative role on housing and the economy in recent months, certain residential construction industry headwinds moved in positive directions in April but remain key concerns. With respect to building materials, softwood lumber prices were down 4% in April from March and off 8.2% from a peak one year ago. OSB prices continue to tread water so far in 2014, declining 0.6% in April, after a sharp 2013 reversal of the steep run-up in prices in 2012. OSB prices remain 23.8% above their average level in 2011. Gypsum prices declined 3.7% in April, the second monthly decline, but remain 41.9% above their average 2011 level.

Mortgage delinquency rates continue to decline. Data released by the Mortgage Bankers Association indicates that the delinquency rate for mortgage loans on one-to-four-unit residential properties, considered single-family properties, decreased to a not seasonally adjusted rate of 5.69% of all loans outstanding at the end of the first quarter of 2014, 106 basis points below the 6.75% delinquency rate recorded in the first quarter of 2013. This level represents the lowest level since the first quarter of 2008.

And in other finance news, NAHB survey data suggests that lending conditions for acquisition, development and construction (AD&C) loans continue to ease but remain tight. In the first quarter of 2014, the overall net tightening index based on the AD&C survey improved from -25.5 to -30.8. The index is constructed so negative numbers indicate easing of credit; positive tightening, so a lower negative index means greater easing.

Lastly in policy news, the Federal Reserve’s monetary policy committee turned its attention to the timing of its long-run intention to raise short-term interest rates. To avoid the adverse reaction experienced last spring during the speculation concerning the timing of quantitative easing tapering, the minutes included the phrases to communicate that the discussion was planning for the future. NAHB believes this moment will come during the summer of 2015.

Efficient Windows Top List of Green Products Used by Remodelers

May 22, 2014

Energy efficient windows emerged as the leading green product among remodelers responding to NAHB’s Remodeling Market Index (RMI) survey for the first quarter of 2014, as nearly 9 out of 10 remodelers surveyed said they’d commonly used low-e windows during the past year.  Next on the list were high efficiency HVAC systems and programmable thermostats at 70 percent each, closely followed by ENERGY STAR appliances at 69 percent.

Green Remod

Although the features at the top of the list all involve energy eficiency, the term “green” is usually defined more broadly than that.  Moisture control, for example, is classified as green here, because it results in some components of the home needing to be replaced less often, reducing environmental impacts associated with manufacturing, transporting and installing those components over time. The list of 23 green products and practices used in the RMI survey is based on the major sections of the National Green Building Standard (which can and should be applied to remodeling as well as new construction).

Given the difference in cost, it’s perhaps surprising that use of program-mable thermostats is no more common than use of high efficiency HVAC among remodelers.  Anecdotally, several NAHB members have reported that a small but discernible share of their customers tend to resist devices that require programming.  A similar result was found in a survey on green products and practices used by single-family builders.

It’s also interesting that, across the two surveys, the same four green features appear at the top of the list and in the same order for both remodelers and builders.  The remodelers’ percentages tend to be a little lower, but this is natural, because not every remodeling project involves every home component. High efficiency HVAC systems, for example (the second ranked green feature for both builders and remodelers) are commonly used by 90 percent of builders, compared to 70 percent of remodelers.  But remodelers who specialized in projects like replacing windows or building decks in 2013 may have seldom if ever needed to install HVAC systems, while builders of new homes would have, at some point, dealt with every aspect of HVAC.

Eye on the Economy: Home Improvement Season

May 14, 2014

After a weak performance for the economy as a whole during the first quarter, spring is a time for improvements – for homes and the overall housing market.

May is National Home Remodeling Month, and NAHB has useful data for remodelers who want to know why home owners are undertaking improvements, as well as the most common types. Among remodelers participating in an NAHB industry survey, bathroom remodeling was cited as the most common project, narrowly beating out kitchen remodeling. Window and door replacements, whole housing remodeling and room additions rounded out the top five.

Data from the American Housing Survey indicate that home owners are most likely to use a professional remodeler for jobs involving HVAC systems and roofing followed by siding, windows/doors, electrical systems, plumbing and floors. According to the NAHB survey, the most common reasons for remodeling included a desire for better amenities, a need to replace or repair old components, and a need for additional space in the home.

Home improvement spending has a direct economic benefit on the economy. New estimates from NAHB indicate that every $1 million in remodeling spending creates 8.9 jobs. These estimates also note that building 100 single-family homes creates 297 jobs, and developing 100 multifamily units generates 113 jobs.

The role of housing investment as a job creator was highlighted by NAHB in testimony before the Senate Economic Policy Subcommittee hearing “Drivers of Job Creation.” That hearing involved a discussion of the transitions in the construction labor market as housing construction continues to recover. March data from the Bureau of Labor Statistics JOLTS survey reveal 104,000 unfilled construction sector jobs, as firms in some markets report challenges in filling vacant positions.

Despite disappointing housing data at the start of 2014, the housing recovery continues. The NAHB/First American Leading Markets Index (LMI) rose one point in May to a level of 0.88. The LMI measures how close local markets are to normal conditions, based on reading of home prices, labor markets and housing construction permits. About one-quarter of all metro areas showed improvement from March to April on the LMI and 300 (85%) showed improved from May 2013.

As of the first quarter 2014, housing’s share of GDP stood at 15.5%, with home building contributing three percentage points of that total. NAHB is forecasting solid growth in single-family starts and continued expansion of multifamily development for the year; thus, housing’s share of the economy should continue to grow.

Residential construction spending in March posted a small increase but remains effectively unchanged over the course of 2014 thus far. The current pace of home construction spending ($369.8 billion on a seasonally adjusted annual basis) is 0.8% over February and 16% higher than a year ago. From March 2013, on a three-month average basis, single-family construction spending has increased by 16.3%, multifamily is up by 30.8%, and remodeling has grown by 12.8%.

The NAHB single-family 55+ survey reported the most positive first quarter market conditions for senior housing development in its history. Compared to the first quarter of 2013, the single-family index increased four points to a level of 50, which is the highest first-quarter reading since the inception of the index in 2008 and the 10th consecutive quarter of year –over- year improvements. There are many factors contributing to the positive signs in the 55+ housing market, including rising house prices and low interest rates that are helping baby boomers sell their current homes at a favorable price and in turn, purchase a new home more suited to their preferred lifestyles.

Recent declines in housing affordability remain an industry headwind as the housing sector meets the traditional spring selling season. Home prices continue to rise, with the S&P/Case Shiller 20-City Index up 0.8% in February and gaining 12.9% over the prior 12 months.

For the overall housing market, data from the Federal Reserve’s Senior Loan Offer Opinion Survey suggest that demand for mortgages weakened during the first quarter, with many regional banks reporting tightened lending standards. Nonetheless, housing affordability conditions remain positive by historical standards. The NAHB/Wells Fargo Housing Opportunity Index ticked up during the first quarter of 2014. Per the HOI, 65.5% of all homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $63,900.

In macroeconomic news, GDP growth in the first quarter was a disappointing 0.1% gain, with downward revisions expected. Weather impacts took a toll on investment components, including home building during the start of the year. However, personal consumption expenditures remained solid, growing 3%.

The April employment report brought relatively positive news, with 288,000 net jobs created for the month. The unemployment rate fell from 6.7% to 6.3%, although that decline was due to large 806,000 decline in the number of people in the labor force.

Finally in analysis news, NAHB followed up prior examinations of local housing markets using Census data. The most recent study tracked the top markets for changes in single-family and multifamily market shares. Among the findings: Areas with the largest gains in single-family market concentration tended to have above- average population growth. Top markets using this measure included Fairbanks (Alaska), St. George (Utah), Yuma (Ariz.), and Yakima (Wash.).

Benefits of Hiring a Professional Remodeler

May 13, 2014

It is National Home Remodeling month and NAHB wants to emphasize the benefits of hiring a professional remodeler.  There are two aspects to this: 1) hiring a contractor rather than attempting a project yourself, 2) hiring a contractor who is a well-qualified professional remodeler, such as members of NAHB Remodelers or those who have earned one of NAHB’s Professional Designations.

According to  2011 American Housing Survey (AHS) tables from HUD and the Census Bureau, over 60 percent of home owners hire contractors for home improvement activities overall, but the share varies depending on the activity.  At the top of the list among activities undertaken by at least 1 million homeowners a year, 87 percent of owners hire contractors for HVAC jobs, followed by roofing jobs at 82 percent.  On a dollar basis, the shares would be significantly higher, as owners tend to hire contractors for larger projects (see previous post).

Professional Blog

A leading reason NAHB recommends home owners be careful about attempting projects on their own are safety, as lack of familiarity with tools and techniques can lead to serious accidents.  Working on a roof is often cited as an activity with the potential for serious injury.  Another reason is cost, as home owners may forget to factor in the cost of tools.  Many remodeling projects require specialized tools, which a home owner will purchase and only use once or twice.   Cost of a project, of course, can also escalate if it is done incorrectly the first time and therefore has to be re-done.

An advantage of a well qualified professional remodeler is experience with the appropriate tools and specialized knowledge needed to perform correctly.  HVAC work is an example of something that can’t be done by everyone and requires specialized knowledge, for example to size a unit correctly for a particular home.  A follow-up post next week will cover what homeowners look for in a remodeler and what they think of remodelers with professional designations.

Construction Job Openings Decline in March

May 9, 2014

The number of open, unfilled construction sector jobs continued to decline as the unseasonably cold winter ended.

According to the BLS Job Openings and Labor Turnover Survey (JOLTS), the number of open construction sector jobs declined on a seasonally adjusted basis from 127,000 in February to 104,000 in March. While still high relative to the post-recession period, the March level was the lowest since July of last year but the 11th consecutive month above 100,000. Winter conditions slowed the growth of home construction in recent months, and this factor could have slowed the number of jobs offered by builders and remodelers.

On a three-month moving average basis, the open position rate for the construction sector fell to 1.93% for the month of March, continuing a decline begun in December. While the open rate has declined somewhat in recent months, the rate of open jobs in construction remains above any rate witnessed after the recession and prior to 2013.

Jolts_March data_construction

Monthly gross hiring in construction declined somewhat, falling on a seasonally adjusted basis from 289,000 to 260,000 from February to March. Over the same period, the hiring rate, as measured on a 3-month moving average basis, was effectively unchanged at 4.67% for March.

Two trends in the construction sector are worth noting. First, the layoff rate for the sector (graphed above as a 12-month moving average) has continued to fall. Second, the sector hiring rate has fallen noticeably since the fall of 2013. The trend lines over the last two years – a falling hiring rate, an increasing opening rate trend, and a declining layoff rate – are consistent with some construction firms having trouble contracting with workers for specific projects. However, future employment reports will indicate whether recent hiring weakness is mostly due to weather effects or reflects new baselines for construction activity.

Monthly employment data for April 2014 (the employment count data from the BLS establishment survey are published one month ahead of the JOLTS data) indicate that total employment in home building stands at 2.257 million, broken down as 659,000 builders and 1.598 million residential specialty trade contractors.

Res construction employment_Apr

Over the last year the home building sector has added 108,000 jobs. Since the point of peak decline of home building employment, when total job losses for the industry stood at 1.466 million, 273,600 positions have been added to the residential construction sector. As of March, over the last six months the home building and remodeling industry has added on average more than 11,000 jobs per month.

For the economy as a whole, the March JOLTS data indicate that the hiring rate was constant at 3.4% of total employment. The hiring rate has been in the 3.1% to 3.4% range since January 2011. The current overall job openings rate (2.8%) has been in the 2.7% to 2.9% range since the start of 2013.

First Quarter 2014: Housing Share of the Economy at 15.5%

April 30, 2014

Housing is an important source of economic growth. As of the first quarter of 2014, housing’s share of gross domestic product (GDP) was 15.5%, with home building yielding 3 percentage points of that total.

housing share of GDP_1q14

Housing-related activities contribute to GDP in two basic ways.

The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building and remodeling contribution to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees. For the fourth quarter, RFI was 3% of the economy.

While the first quarter of 2014 was the fourth strongest level of RFI after the Great Recession ($482 billion annualized pace), the slowing of the rate of growth for home building was a drag on quarterly GDP growth.  This was the second consecutive quarter of drag after 12 straight quarters of boosting economic growth. Nonetheless, the trend in recent quarters indicates that RFI is growing faster than the economy as a whole. For example, over the last two years, the quarterly annualized measure of GDP has grown about 3.7%, while RFI is up 15.5%.

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach because without this measure increases in homeownership would result in declines for GDP. For the fourth quarter, housing services was 12.5% of the economy.

Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.