Single-Family, Multifamily, Home Improvement Spending All Up

Total private residential construction spending increased to a seasonally adjusted annual rate of $328.6 billion in May 2013, the fastest pace of residential construction since October 2008. The reading is 1.2 percent above the positively revised April estimate and 22 percent higher since a year ago.

All three components of residential construction spending registered gains. New multifamily construction spending showed the largest increases, rising 2.5 percent since April and 51.7 percent since May 2012. It is now at a seasonally adjusted annual rate of 31.8 billion.

Spending on new single-family homes increased to an annual rate of $166.3 billion, the rate unseen since August 2008. On a year-over-year basis, new single-family construction spending increased 33.2 percent.

Finally breaking the decline that started in January 2013, home improvement spending also registered gains. Remodeling spending increased to an annual rate of $124.2 billion, 1.9 percent above the April reading, 7 percent above the year ago, but still below the spending rate registered during the first quarter of 2012.

House Prices Move Higher

Nationally, house prices continued to rise in April, contributing to the overall recovery in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency, U.S. house prices rose by 0.7% on a month-over-month seasonally adjusted basis in April. This is the fifteenth consecutive monthly increase for the House Price Index – Purchase Only. Since January 2012, house prices have risen by 9.9%.

The April increase in house prices was geographically widespread, increasing in every division of the country. As Chart 1 illustrates, the largest gains took place in the Pacific and Mountain divisions, regions of the country containing states, like Nevada and California, that experienced the largest price declines.

Meanwhile, Standard and Poor’s reported that its house price index also rose in April. According to the most recent release, the S&P/Case-Shiller House Price Index – 20-City Composite grew by 12.1% on a year-over-year not seasonally adjusted basis. Following 20 consecutive months of year-over-year declines, house prices registered their eleventh consecutive year-over-year increase in April. House price growth in San Francisco, a city in the Pacific region, and in Las Vegas, a city in the Mountain region, eclipsed house price growth in Phoenix, a city in the Mountain region. However, as chart 2 illustrates, each of these cities in addition to Atlanta experienced year-over-year house price growth greater than 20.0%. April is the eighth consecutive month that Phoenix has experienced a 12-month price increase greater than 20.0%.

Rising house prices for existing homes, such as those counted in the FHFA and in the S&P/Case-Shiller House Price Indices, is a net positive for the housing recovery. Recovering prices will improve conditions for builders, lead to higher inventories of new construction, and motivate potential sellers of existing houses to come back into the market. Data released jointly by the US Census Bureau and the US Department of Housing and Urban Development showed that newly constructed single-family houses sold at a seasonally adjusted annual rate of 476,000 in May, 2.1% higher than level of new single-family houses sold in April. Going forward we expect house prices to continue to rise, by 9.5% overall in 2013 and by 4.5% in 2014.

For full histories of the 20 markets included in the Case-Shiller composite, click here cs.

For full histories of the FHFA US and 9 Census regions, click here fhfa.

Rental Market Continues to Strengthen

The most recent data from the Survey of Market Absorption of Apartments (SOMA) showed that completions of privately financed, nonsubsidized, unfurnished rental apartments continued to climb in the fourth quarter of 2012. The reported 31,600 completions in buildings with 5+ units were slightly above the third quarter level and more than doubled since the fourth quarter of 2011. At the same time, the absorption rates (units rented or sold after construction of the property is complete) remained high, close to 65 percent. Averaged over 2012, the apartment absorption rates reached 64 percent, a level not seen since 2001.

The condo and co-ops completions remained at historically low levels – only 1,800 units were completed in the fourth quarter of 2012. However, the condo absorption rates improved remarkably. About 78 percent of the condominiums completed in the fourth quarter of 2012 were sold within three months of completions. This rate is 20 percent higher from the previous quarter and 33 percent higher from a year ago.  Over 2012 the condo absorption rates have averaged around 66 percent, marking the highest reading since 2006. Leaner inventories should bolster condo and co-op construction activity going forward, but we expect these units will maintain a diminished share of overall 5+ multifamily production.

The SOMA also reported that approximately 8,100 federally subsidized or tax credit units were completed in the fourth quarter of 2012. This represents a decline of 3,400 units since the previous quarter and 4,100 since a year ago.

House Prices Continue to Rebound

Nationally, house prices continued to rise in March, contributing to the overall recovery currently underway in U.S. house prices. According to the most recent release by the Federal Housing Finance Agency (FHFA), U.S. house prices rose by 1.3% on a month-over-month seasonally adjusted basis in March and 1.9% on quarter-over-quarter basis. This is the fourteenth consecutive monthly rise and the seventh consecutive quarterly increase for the House Price Index – Purchase Only (HPI). Over the past year house prices have risen by 6.7%.

The March increase in house prices was geographically widespread, increasing in every division of the country. The Census Bureau uses divisions to segment the four major regions of the country; Northeast, Midwest, South, and West. As Chart 1 illustrates, every division experienced a month-over-month increase in house prices, furthering the price recovery underway in each division.

Although house prices have extended their gains, they have not fully recovered their pre-bust peak. However, it’s clear from the chart that price appreciation accelerated during the boom compared to earlier years. In hindsight those gains were unsustainable and the declines represent a correction, purging the speculative bubble. The recent increases are based on a return to a fundamental balance between house prices and incomes. According to the HPI, house prices are now on par with those that prevailed in November 2004.

For full histories of the FHFA US and 9 Census divisions, click here.

Improving Markets Index: Erie, PA MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the twelfth release , 99 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Erie, Pennsylvania metropolitan statistical area (MSA).

The improvement of the Erie economy and its housing market is due to several factors including a recovery in manufacturing, which employs about 25% of the workforce, its position as a major retail center, drawing shoppers from the tri-state area (OH, NY and PA) as well as Canada, and its position as a fast growing regional healthcare center with a number of large hospitals including UPMC Hamot, Millcreek Community Hospital, and St. Vincent Medical Center.  In addition there is Saint Mary’s, a large nursing home with numerous facilities and Regional Health Service Inc. with many offices scatterd across the area and the already large and expanding  Lake Erie College of Osteopathic Medicine (LECOM) which has a medical school, school of pharmacy and a new dental school.  Erie also benefits from a steady stream of tourists who travel from Cleveland, Pittsburgh and Buffalo to enjoy access to Lake Erie and beautiful Presque Isle.  Erie is also home to a number of colleges including (Penn State) Berhend College, Gannon University, Mercyhurst University and Edinboro University.  Lastly, Erie is home to the Erie Insurance Group, GE Transportation Systems which makes among other things locomotives, Plastek Industries and a large Lord Corporation facility.            

According to home builder Mike Corsi, Vice President of the C & C Development Group, “things are definitely getting better.  The combination of growth at the hospitals and universities and turnover at our large firms has guaranteed a steady stream of well paid households that continually relocate here for work.  In addition, growth at LECON has resulted in a shortage of rental apartments for the students and increased demand for housing from new faculty that frequently results in a demand for new housing.   We are also witnessing a rise in remodeling activity.  It’s being caused by the simultaneous realization by many home owners that they will be staying their existing house for a while longer, and that home prices are on the upswing.”  He concluded by saying “tourism also is a big help.  While many tourists come just for the weekend to enjoy the water, the vineyards or skiing, others buy cottages and stimulate the economy in that way.”              

According to Jim Grieshober, Owner of J.E. Grieshober Plumbing-Hydronics , “Erie never saw huge increases in real estate prices and as a result has not seen much in the way of a decline either.  We miss the highs and the lows.  And, of late pent-up demand is starting to make itself felt among those who are more secure in their job and can get a loan.  Things would be even better if only the credit situation improved and if new regulations that add thousands and thousands to the price of a new house had not been passed.  That being said, the cost of living is low, Lake Erie is quite a draw and there is not much inventory around.”  Whatever the cause, house prices are definitely firming.  They are up 1.4% since the trough in February 2011 and are off less than 3.7% from their all–time high set in December 2009.    

Improving economic conditions have resulted in payroll employment being down exactly 2% from its peak in June 2000 and up by a healthy 9.9% since the trough in January 2010.  Single family permitting activity is up 8.0% on a seasonally adjusted monthly average basis from the trough set in April 2011.  While new homes are being built in many parts of Erie, activity has been primarily centered in a ring around the outskirts of Erie extending from Girard Township, Fairview Township and Millcreek Township in the west, through Summit Township in the south and Harborcreek Township in the east.

Improving Markets Index: Palm Bay, FL MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the twelfth release , 99 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Palm Bay-Melbourne-Titusville, Florida metropolitan statistical area (MSA).

The turnaround in the Brevard County economy and its housing market is due to several factors including a steady rise in tourism and recreation expenditures compared to 2010 including a rise of almost 10% in the number of multi-day cruise passenger traffic departing from Port Canaveral.  The area also benefits from its position as a large regional healthcare center with three large healthcare systems including Health First, Inc., Holmes Regional Medical Center and Wuesthoff Health System, Inc., which together employ close to 11,000 persons.  Brevard County is also is home to Patrick Air Force Base, Cape Canaveral Air Force Station, the US Air Force Malabar Test Facility, a naval Trident ballistic missile submarine turning basin and a Naval Ordnance Test Unit.  Brevard County also boasts a large number of high-tech firms such as Harris Corporation, Boeing, Northrop Grumman, Lockheed-Martin, Rockwell-Collins, Honeywell and many other firms that have recently grown and have largely made up for the gradual decline and eventual loss of the Space Shuttle program.   

According to home builder David Armstrong, President of Armstrong Custom Homes, “things are definitely getting better.  The combination of an active and aggressive Economic Development Corporation, the creation of the duty-free zone in Titusville and the expansion of many of the high-tech firms here are helping us backfill the loss of the space center.  In addition, the announcement that Space-X will be expanding here has also boosted buyer spirits.  We are also seeing a rise in remodeling.  Many owners now convinced that they will be staying their existing house for a while longer, are adding a second floor and or updating kitchens and bathrooms.  Another factor in the turnaround is that the national news is getting better and buyers are tired of waiting and are not getting younger.”  He concluded by saying “another indicator of our improving economy is the increase in small business activity.  More new business are opening and that too is helping.”              

According to Marcia Bartley, President of All Pro Title, Inc., “the inventory of existing homes is declining and that is putting upward pressure on prices.  On top of that there are no spec homes being built and the foreclosures that are on the market tend to be in poor condition and buyers are no longer willing to tolerate the false starts and delays that come with trying to purchase one of them.  As a result of these factors, appraisals are starting to rise and that gives prospective buyers increased confidence and as a result, a feeling of cautious optimism is starting to take hold.”  Whatever the cause, house prices are definitely firming.  They are up 6.4% since the trough in April 2011 and look to continue rising through the end of this year and into 2013 and beyond.    

Improving economic conditions have resulted in payroll employment being down less than 11% from its peak in May 2006 and up by 1.3% since the trough in December 2011.  Single family permitting activity is up 2.0% on a seasonally adjusted monthly average basis from the trough set in April 2009.  While new homes are being built in many parts of Brevard County, activity has been primarily centered in the Viera area where there is a new VA clinic, a new hospital, the government center, excellent shopping and is where the spring training home of the Washington Nationals is.  West Melbourne, between Melbourne and Palm Bay, is also a place where new construction activity is pronounced, in large part due to the excellent school system.

Improving Markets Index: Canton, OH MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI is intended to draw attention to the fact that housing markets are local and that there are metropolitan areas where economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and are indicative of improving economic health.  The three are employment, house prices and single family housing permit growth.

For the eleventh release , 80 markets are currently classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Canton-Masillion, Ohio metropolitan statistical area (MSA).

The health of the Canton housing market is in part due to its business friendly environment and low state and local taxes, and the presence of four growing colleges and universities including Stark State College with a student population of over 15,000, and Walsh University with an enrollment of about 3,000.  Canton also benefits from being a growing regional healthcare center with Aultman Hospital and its 5,000 employees as well as Mercy Medical.  However of late, Canton’s growth is primarily, due to the all important Utica shale, a rock layer several thousand feet below the Marcellus shale, and which lies directly below Canton.  As a result Chesapeake Energy, Exxon, Anadarko, Chevron and others are starting to drill and other energy related firms including Slumberger, Baker Hughes, Michael Baker Corporation, and J-W Wireline are all setting up shop.  Canton also benefits from the presence of national firms like Belden Brick, Marathon Petroleum and GE Capital and is the Global headquarters of The Timkin Company and Diebold Incorporated.     

According to home builder James Rudo, President of VictoryGate Custom Homes, “drilling companies as well as oil and gas service companies are setting up operations.  While the Utica shale is just starting to be exploited through fracking and horizontal drilling, the effects of it are being felt in many ways.  For example field managers and executives are beginning to relocate here and these new households not only need housing but often want new houses.”  He went on to say that, “there is not much standing inventory and what little exists is in poor shape.  As a result it is often cheaper to build a new home than buy an existing house and remodel it.  As a result holding a spec is hard as everything sells.  As a matter of fact, things are so good we just hired a new supervisor.”  He closed by saying “referrals are a huge part of our business and we augment it with some light advertising.     

According to Barbara Bennett, President, a managing partner at the engineering firm Hammontree & Associated, Limited, “because of the Utica shale our hotels are full, are restaurants are all busy, there are no vacant storage facilities or warehouses, and there is a constant shortage of truck drivers.  In addition, there is a dramatic up-tick in industrial development and infrastructure improvements.  As a result of this added activity, not to mention the cashing of royalty checks by landowners, the local economy is more vigorous than ever.  As a matter of fact, we are currently working with developers on two brand new subdivisions.”  As a result, house prices have held up well over the past few years.  Prices are up 1.6% since the trough in January 2011 and are off less than 19% from their all-time high set in June 2006.     

Improving economic conditions have resulted in payroll employment being off just 6.2% from the high of the past decade set in July 2002 and up by 7.8% since the trough in October 2009.  Single family permitting activity is up a robust 9.7% on a seasonally adjusted monthly average basis from the trough set in November 2011.  While new homes are being built in many parts of the Canton MSA, activity has been primarily centered in northern Stark County including the City of Green and Jackson Township.

Improving Markets Index: Victoria, TX MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI is intended to draw attention to the fact that housing markets are local and that there are metropolitan areas where economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and are indicative of improving economic health.  The three are employment, house prices and single family housing permit growth.

For the eleventh release , 80 markets are currently classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Victoria, Texas metropolitan statistical area (MSA).

The health of the Victoria housing market is due to near equidistant location from Austin, Corpus Christi, Houston and San Antonio making it the regional hub of South Texas.  Additionally, the growth of both Victoria College and the University of Houston–Victoria, Victoria’s growing position as a regional healthcare, shopping and entertainment center, and its large and growing petrochemical industry have also boosted the local economy.  However, it’s the new 1.3 million sq ft. Caterpillar hydraulic excavator facility and the even more recent and sudden exploitation of the Eagle Ford Shale just north and west of Victoria, due to hydraulic fracking, that are causing Victoria to boom.  Due to Caterpillar a number of suppliers are moving to town and because of the nearby Eagle Ford shale, many oil service firms including pipeline and drilling companies are fast locating nearby.     

 According to home builder Tony Prokop, President of Prokop Custom Homes, LLC, “because we are one of the biggest cities near the Eagle Ford shale people in the oil and gas industry are moving here from all over the country.  And, since drilling is expected to last well over a decade, these same people are putting down roots and buying nice homes. Due to the fact that there was already a very limited inventory of existing homes before Caterpillar built here, the petrochemical plants expanded and fracking began, the new demand translates directly into strong demand for new upscale housing.”  He went on to say that “it’s also important to note that there are also lots of new homes and second homes being built by landowners who are now getting monthly royalty checks from the oil companies, not to mention all the new cars and boats being sold.” 

According to Howard Marek, a partner in the law firm of Marek, Griffin & Knaupp, “business is doing so well we are seriously considering growing the size of our firm.  Hotels are all full, and builders are building new homes in all price ranges.  In addition, because of all the in-migration, more restaurants are opening up and there is talk of other large employers moving to Victoria.  On top of all this, we expect more suppliers to move here, after all Caterpillar broke ground on its initial facility less than 18 months ago.”  Whatever the causes, house prices have held up well over the past few years.  Prices are up 13.5% since the trough in February 2011 and recently surpassed the previous high set in June 2010.       

Improving economic conditions have resulted in payroll employment being down just 1.5% from its high of 51,900 set in August 2008 and up by 5.6% since the trough in November 2009.  Single family permitting activity is up 4.7% on a seasonally adjusted monthly average basis from the trough set in September 2010.  While new homes are being built in many parts of the Victoria MSA, activity has been primarily centered south of the city from the Port of Lavaca to Port O’Conner all the way to Rockport, with additional activity northwest of town in Cuero close to the Eagle Ford shale.

Improving Markets Index: Terre Haute, IN

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the eleventh release , 80 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Terre Haute, Indiana metropolitan statistical area (MSA).

The resurgence of the Terre Haute economy, and its housing market, is due Terre Haute being a large regional healthcare center, the presence of Indiana State University, the Rose-Hulman Institute of Technology, Ivy Tech Community College and St. Mary-of-the-Woods College.  Its location not far from Evansville, Indianapolis and St. Louis also helps.  In combination, healthcare and post-secondary institutions employ over 7,000 persons and are three of the five largest employers in the area.  In addition, there is a considerable amount of manufacturing in Terre Haute including the largest disc production facility in the United States, Sony DACD.  Other manufacturers with a large presence in Terre Haute include Bemis, a supplier of flexible packaging and pressure sensitive materials, GE Aviation, which manufactures turbine engine components, ThyssenKrupp Presta, a manufacturer of automobile steering columns, and others.  Terre Haute also benefits from the presence of a United States Federal Corrections Complex as well as the Indiana Air National Guard.   

According to home builder Rick Jenkins, owner of Richard Jenkins Construction, “the combination of a mild winter and historically low interest rates have caused pent-up demand to finally materialize.  In addition, our colleges are all expanding which results in more staff and that translates into increased demand for housing.  Also, until recently agriculture was doing well putting more money into the hands of farmers who bought houses and whose increased spending caused others to buy houses too.”  He went on to say that there is increased buyer confidence now that prices are on the upswing and because we got through the Pfizer plant closure and the loss of the fighter jets at the Air National Guard facility relatively unscathed; that is without a fall in house prices or employment levels.”              

According to Tim Malooley, General Manager of Niehaus Home Centers, “it’s a combination of several things that’s causing our market to perk up.  First, there never was never much overbuilding and as a result prices never had far to fall.  Second, because of all the hospitals and universities there is always a good deal of turnover which helps the housing market and third, there is a small but steady flow of immigrants who move here for jobs and more often than not, those transferees want a new house.  Were it not for the credit crunch, things would be much better.”  In spite of a lack of credit, house prices are definitely firming.  They are up 0.3% since the trough in August 2011 and are off less than 9.0% from their all-time high set in September 2006.   

Improving economic conditions have resulted in payroll employment being just 8.9% from its peak in March 2000 and up by 2.5% since the trough in December 2011.  Single family permitting activity is up 2.0% on a seasonally adjusted monthly average basis from the trough set in February 2011.  While new homes are being built in many parts of the four-county Terre Haute MSA, activity has been primarily centered in the south and southeast parts of Vigo County close to the city.  After Vigo County, Clay County has been most busy, but due it being rural, activity has been quite scattered. 

Improving Markets Index: Miami, FL MSA

NAHB recently unveiled an index that tracks housing markets on the mend, the NAHB/First American Improving Markets Index (IMI).  The IMI highlights the fact that housing markets are local and that there are metropolitan areas where an economic recovery is underway.  The index measures three readily available monthly data series that are independently collected and indicative of improving economic conditions.  The three series are employment, house prices and single family housing permit growth.

For the eleventh release , 80 markets are classified as improving under a conservative examination of local economic and housing market conditions.  Among these areas is the Miami-Fort Lauderdale-Miami Beach, Florida metropolitan statistical area (MSA).

The turnaround in the Miami economy and its housing market is due to many factors including a steady rise in traffic at the Port of Miami, the world’s largest cruise ship port, and its position as a major television production center and the most important city in the US for Spanish language media.  Miami also benefits from its proximity to South America, and the relative affordability of housing in Miami compared to many of the major cities in South America and Europe.  The recent up-tick in tourism and cruise ship activity along with the presence of the University of Miami, the largest private employer in the MSA, the growing bio-tech sector and its position as a large international and regional healthcare center are also part of why Miami is recovering.  In addition Miami is home to the National Hurricane Center and the US Southern Command, responsible for all military operations in Central and South America.     

According to home builder Ray Puzzitiello, President of Puzzitiello Builders, LLC, “there’s a lot of pent-up demand among buyers in their 50s, 60s and 70s.  These buyers are not getting any younger and have now put their plans on hold for years and are tired of waiting.  In addition, many of these buyers want a new home or condo and are not prepared to deal with all the problems and delays that inevitably come with a short-sale.  As a matter of fact, interest in buying new is so strong that as you move progressively closer to the water we are witnessing short-sale-tear-downs where older smaller houses are being removed to make way for new larger ones.  Similarly, many buyers are now willing to wait for a house to be built rather than buy from the existing stock.”  He concluded by saying “another reason why things are doing well here is because house prices in the northeast are stabilizing and even rising so snowbirds are now more confident about selling their homes in CT, NJ, NY and PA, and are also more willing to borrow given historically low interest rates.”              

According to Richard Burton, Partner at the Burton Firm and the driving force behind The Foreclosure Project, “prices in Miami, Fort Lauderdale and Palm Beach are a bargain to the many Brazilians, Canadians, German and Russians who are now buying.  In some cases they are buying with an eye to living here part of the year while others simply want to park their money in a safe location and take advantage of the rapidly strengthening rental market.  The key is to find the right price-point in the right location and this is just as true for luxury buyers of waterfront condos as it is for first-time homebuyers.”  Whatever the cause, house prices are definitely firming.  They are up 0.4% since the trough in November 2011 and look to continue rising through the end of this year and into 2013 and beyond.    

Improving economic conditions have resulted in payroll employment being down less than 8% from its peak in August 2007 and up by 2.7% since the trough in January 2010.  Single family permitting activity is up a strong 4.1% on a seasonally adjusted monthly average basis from the trough set in April 2009.  While new homes are being built in many parts of the tri-county Miami MSA, activity has been primarily centered in Boynton Beach in Palm Beach County, the Parkland area and downtown Fort Lauderdale in Broward County and in downtown Miami, the Design District and in Aventura in Miami-Dade County.