Housing Starts a Mixed Bag

August 16, 2013

Data released by the U.S. Census Bureau in conjunction with the Department of Housing and Urban Development indicates that privately-owned housing starts were at a seasonally adjusted annual rate of 896,000 in July, 6% above the upwardly revised June estimate of 846,000 and 21% above the July 2012 rate of 741,000.

The month-over-month increase in housing starts reflects sizeable gains in multifamily housing. According to the release, multifamily housing starts rose by 26% over the month of July to a seasonally adjusted annual rate of 305,000, partially offsetting the 25% decline that took place in June. On a 3-month moving average basis, which smoothes the volatility, multifamily housing starts increased by 6% to 290,000. Despite the increase, the 3-month average of multifamily housing starts remains below the 300,000 level that was recorded in the first five months of the year.

Meanwhile, growth in total private housing starts was partly restrained by a slight dip in single-family housing starts. Over the month of July, single-family housing starts fell 2% to 591,000 units. Geographically, the month-over-month declines took place in the South (-5%) and in the West (-10%), while single-family housing starts in the Northeast (+12%) and the Midwest (+10%) rose. The decline in single-family housing starts that took place in the South and in the West may partly reflect higher than average precipitation over the month of July. According to the National Oceanic and Atmospheric Administration, rainfall across the country was higher than normal in July with parts of the South and the West experiencing the most rainfall July relative to their normal levels. Despite the slight monthly decline in single-family housing starts, the underlying trend remains basically unchanged. On a 3-month moving average basis, single-family housing starts were 597,000, 0.1% below its level in June.


Builder Confidence and Housing Starts

July 25, 2013

The NAHB/Wells Fargo Housing Market Index is at its highest level in almost 8 years. The July level of 57 was up 6 points from June and 16 points from April. The index has been on a fairly steady rise since wandering in the teens through almost all of 2011. In percentage terms, the HMI has more than doubled between April 2012 and June 2013.

Single-family housing starts, on the other hand, have risen but not as substantially. In the same 14 month period, single-family starts are up 17% from April 2012 to 2013. During that period, starts were as high as 29% above their April 2012 level.

The HMI is designed to track current and future single-family housing starts. At least theoretically, the same group who responds to the HMI questionnaire is the group that actually builds the homes tracked in the starts survey conducted by the US Census Bureau and sponsored by US Departments of Commerce and Housing and Urban Development. The HMI is driven by the responses to three questions: an assessment of current sales, of expected sales over the next six months and traffic in the sales model or office. The HMI is the weighted average of the three components and the weights were chosen to best track single-family housing starts out to six months in the future.

Figure 1 shows the historic relationship between the HMI and single-family housing starts, scaling the graphs so the peaks are roughly aligned. Sympathetic trends are obvious throughout much of the history.

Figure 1

So, the logical question is why has the HMI been increasing at a faster pace than starts recently? The only other significant housing recovery cycle within the history of the HMI is the recovery of 1991-1992. The index did not exist in the 1982 recovery and the mild recession of 2001 did not involve housing.

From January 1991 to March 1992 (14 months) the HMI increased from 20 to 46 or 130%. During that same period, single-family housing starts increased 71%. The early stages of the 1991 housing recovery showed an even larger difference in the rates of increase between the HMI and housing starts. Between January and May 1991, the HMI doubled from 20 to 40 while single-family housing starts increased 39%. A comparison of change in percentage terms for the HMI and starts during the two 14 month periods is shown in Figure 2.

Figure 2

Another 14 month period in the late 1990s saw a similar but smaller diversion in movement between the two indexes. Between September 1997 and November 1998, the HMI increased 31% while single-family starts increased 15%. Single-family starts eventually reached over 1.5 million, which was the highest to date since the mid-1970s. An article on NAHB’s web site shows statistically that the HMI retained its ability to help predict starts during the late 1990s (as well as before and after).

Why the apparent differences during some periods? Housing recoveries are dynamic periods when futures remain uncertain and reassembling the housing industry’s infrastructure can be erratic. After a run of poor housing demand and just as buyers return to the market, builders begin to see the potential that existed before the collapse. While the recession of 1990-1991 was mild compared to the recent Great Recession, it was the worst the industry had seen in almost a decade and the recovery appeared and was proven ultimately to be very robust. Single-family starts did double but it took two and a half years.

Similarly, the delayed housing recovery from the Great Recession has taken longer to take hold and has yet to see dramatic changes. Nonetheless, single-family starts have increased 67% from the trough and are expected to double from their low point by mid-2014. The early improved confidence exhibited by home builders in the HMI is a signal just as it was in the 1991 recovery that the market will continue to improve as the infrastructure of the industry recuperates and repairs itself.

Builders are experiencing difficulty hiring the necessary workers with the worst shortages in framing crews and carpenters. Developed lots are in short supply, particularly those in the locations where buyers are shopping. The land development process ceased during the downturn and restarting the several-year procedure takes time. Building material prices spiked earlier this year as starts moved up but producers of building supplies took time to add capacity, workers and raw materials. Capital remains in short supply as the banks that usually lend to builders repair their balance sheets and regulators continue their clamping down on lending to the residential sector. Builders are coping with these head winds but it has slowed actual production from meeting builders’ expectations.

Single-Family, Multifamily, Home Improvement Spending All Up

July 1, 2013

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

June 25, 2013

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.

Weak Remodeling Activity Weighs on Residential Construction Spending

May 2, 2013

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.

construction spending

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

April 1, 2013

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.

construction spending

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

February 7, 2013

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.

55+HMI 12Q4Meanwhile, 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

February 1, 2013

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


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

January 3, 2013

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.

construction spending

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 14th 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

December 3, 2012

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.

construction spending

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.