New Residential Construction Spending Continues to Improve

Posted on April 12, 2012 by ccobb

03/26/2012 by Bernard M. Markstein, RCD US Chief Economist

New residential construction spending advanced 2.0% in January, its third consecutive monthly increase, after rising 1.6% in December. Single-family construction spending increased a healthy 2.5% in January, its eighth consecutive monthly increase, after a 2.2% increase in December. However, multifamily construction spending fell for the second month in a row, down 0.4% after dropping 1.4% in December.

Single-family Housing
Single-family housing starts suffered a setback in February, falling 9.9% to 457,000 at a seasonally adjusted annual rate (SAAR) from a revised 507,000 in January. Given that single-family starts have generally been trending upward for the previous nine months, February’s starts may prove to be a temporary stumble. This view is supported by single-family building permits, which increased for the fifth month in a row and the tenth time over the past 12 months.

Additional support for a positive outlook for single-family construction comes from the NAHB/Wells Fargo Housing Market Index (HMI), which held steady in March at 28, its highest reading since May 2007. The HMI has proved to be a good indicator of the direction of housing starts in the short run.

Multifamily Housing
Multifamily housing construction has been a bright spot in the housing market for several months. Multifamily starts jumped 21.1% to 241,000 (SAAR) in February from January’s 199,000. However, since multifamily starts are a volatile measure, the three-month moving average provides a more useful picture. The moving average has generally been rising for the last several months — up in ten of the last 14 months. February’s three-month moving average of multifamily building permits at 236,000 was their highest reading since November 2008. The measure has risen over the last five consecutive months and 13 of the last 15 months.

Outlook for Residential Construction
Continued increases in employment will benefit the housing market in general, but multifamily housing demand in particular. People living in a shared housing situation because of unemployment or first entering the job market who subsequently become employed are likely to seek their own multifamily rental unit.

Nonetheless, the housing market continues to face serious, if diminishing obstacles. Foreclosures remain a serious problem and a drag on the housing market. Single-family builders must compete with the downward price pressure from the sale of foreclosed properties and short sales in many markets. On the positive side, housing prices in several metro markets have stabilized and foreclosures are no longer (or never were) a major problem in many of these markets. Also, there is evidence that lending standards for builders and buyers are easing somewhat.

Overall the outlook for multifamily construction spending remains positive. Continued low interest rates, falling vacancy rates, and rising rents underlie our relatively positive forecast for multifamily construction. The forecast for single-family construction is for continued slow recovery. The improving economy, stronger hiring, low mortgage rates, and rising consumer confidence are all positives for housing and residential construction.

The general improvement in the tenor of the housing market has been sufficient to raise our 2012 forecast of housing starts and increase our 2012 construction spending forecast for new residential construction by roughly $2 billion over last month’s forecast. Although a relatively minor amount from a construction spending perspective, given the low level of current activity, the year-over-year percentage increase went from last month’s 7.5% to this month’s 9.1%. The forecast for 2013 new residential construction spending is unchanged with an increase of 8.0%.

Residential Construction Data
Monthly Figures (1)
(latest actual values) 3-Month
Moving Average Actual Forecast
Dec-11 Jan-12 Feb-12 Dec-11 Jan-12 Feb-12 2008 2009 2010 2011 2012 2013
Northeast Starts 62 73 64 74 77 66 121 62 72 68 76 89
Month-over-Month % Change -35.4% 17.7% -12.3% 1.4% 4.1% -13.9%
(Year-over-year % change of NSA data) 5.0% -20.7% 19.4% -15.3% -48.9% 15.9% -5.3% 12.5% 16.1%
Midwest Starts 167 100 103 124 121 123 135 97 98 101 112 128
74.0% -40.1% 3.0% 22.7% -2.7% 1.9%
162.2% -8.9% 71.0% -35.8% -28.0% 0.8% 3.3% 10.3% 14.8%
South Starts 327 398 404 331 356 376 453 278 298 308 393 431
-4.7% 21.7% 1.5% 0.0% 7.7% 5.7%
20.1% 33.0% 31.6% -33.4% -38.6% 6.9% 3.4% 27.7% 9.5%
West Starts 125 135 127 141 142 129 196 117 120 133 141 183
-25.1% 8.0% -5.9% -8.0% 0.7% -9.4%
-9.2% 14.5% 41.5% -38.9% -40.5% 2.7% 10.5% 6.0% 30.1%
Total Starts (2) 681 706 698 670 696 695 906 554 587 609 721 830
-3.0% 3.7% -1.1% 1.8% 3.9% -0.2%
26.3% 15.7% 35.9% -33.2% -38.8% 5.9% 3.8% 18.4% 15.0%
Total Single-family Starts 505 507 457 467 490 490 622 445 471 431 503 570
10.3% 0.4% -9.9% 6.3% 5.0% -0.1%
16.5% 24.1% 18.4% -40.5% -28.4% 5.9% -8.6% 16.7% 13.3%
Total Multifamily Starts 176 199 241 204 206 205 284 109 116 178 218 260
-27.9% 13.1% 21.1% -7.3% 1.3% -0.5%
62.5% -0.7% 88.6% -8.3% -61.6% 6.2% 54.1% 22.4% 19.1%
New Home Sales (3) 336 318 313 323 325 322 485 375 323 302 322 353
4.3% -5.4% -1.6% 3.6% 0.7% -0.9%
4.3% 4.8% 13.6% -37.5% -22.7% -13.9% -6.5% 6.5% 9.6%
Manufactured Home Shipments 56 61 NA 60 62 NA 82 50 50 49 58 69
-19.0% 9.5% 0.5% 2.8%
38.4% 42.5% -14.5% -39.3% 0.7% -1.5% 17.6% 18.5%
Residential Construction Spending (Billions Current $)
New Single-family 111.2 113.9 NA 109.1 111.3 NA 185.8 105.3 112.6 106.8 116.9 125.3
2.2% 2.5% 1.3% 2.0%
3.9% 5.7% -39.1% -43.3% 6.9% -5.2% 9.5% 7.1%
New Multifamily* 22.6 22.5 NA 22.5 22.7 NA 51.2 35.9 23.7 22.1 23.7 26.7
-1.4% -0.4% -0.2% 0.5%
0.9% 1.9% -8.1% -30.0% -34.0% -6.6% 7.2% 12.5%
New Residential** 133.8 136.4 NA 131.7 134.0 NA 237.0 141.2 136.2 128.9 140.6 151.9
1.6% 2.0% 1.1% 1.7%
3.4% 5.0% -34.3% -40.4% -3.5% -5.4% 9.1% 8.0%
Residential Improvements*** 122.7 124.2 NA 120.7 122.7 NA 120.7 112.7 112.5 116.8 123.3 129.1
1.1% 1.3% 3.0% 1.7%
12.2% 7.2% -13.5% -6.6% -0.2% 3.8% 5.6% 4.7%
Total Residential**** 256.4 260.6 NA 252.4 256.7 NA 357.7 253.9 248.7 245.6 263.9 281.1
1.4% 1.6% 2.0% 1.7%
7.3% 6.0% -28.5% -29.0% -2.1% -1.2% 7.4% 6.5%

Housing starts, home sales, and manufactured home shipments are all in thousands.
(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Total starts may not equal sum of regions due to rounding.
(3) Based on a survey of homebuilders; excludes homes built under contract and multi-family rental units.
* New Multifamily = New Private Multifamily + New Public Multifamily – Public Improvements (estimated by Reed Economics)
** New Residential = New Single-family + New Multifamily
*** Residential Improvements include remodeling, renovation and replacement work.
**** Total Residential = New Single-family + New Multifamily + Residential Improvements.
Total Residential may not equal the sum of its components due to rounding.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

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Hoosiers Gaining From Home Energy Setups

Posted on March 30, 2012 by ccobb

March 27, 2012

News Release

INDIANAPOLIS – Today the Indiana Utility Regulatory Commission (IURC) released a report showing more Hoosiers are taking advantage of renewable energy to supplement their electric usage and mitigate a portion of their energy costs.

The arrangement is known as net metering, which is where a consumer installs a renewable energy facility such as a wind turbine or solar panel and produces his or her own energy. If the amount the customer receives from the utility is less than the amount delivered to the utility, the customer receives a bill credit for the difference.

From 2010 to 2011, the number of customers participating increased from 199 to 298, a 50 percent increase. Due to the increase in customer participation, the maximum output for these renewable energy facilities also increased from 783 to 1,852 kilowatts or 136 percent. This increase in output includes wind and solar energy, which increased 187 percent and 112 percent respectively.

Net metering is a perfect example of Governor Daniels Homegrown Energy Plan, said Commissioner Carolene Mays. “We’re producing more of the energy we need from our own natural resources.”

With the expansion of the net metering rule in July 2011, the IURC included all customer classes, industrial, commercial, and residential , as the minimum standard offering. Under the previous rule, the minimum standard offering only included residential customers and K-12 schools. Other changes to the rule included:

1) An increase in the maximum size of an eligible facility from 10 kilowatts to 1 megawatt;
2) An increase in the aggregate sales level under each utility’s net metering tariff from 0.1 percent to 1 percent of annual kilowatt hour sales.

Freeing the Grid, an annual report published by the Network for New Energy Choices and The Vote Solar Initiative, highlighted the changes by awarding the IURC with a “B” grade. From 2007 to 2009, the grade was an F, and in 2010, it was a D. The grade improvement ultimately earned Indiana the title of – Most Improved, according to the news release issued by the report’s publishers.

The net metering rule only applies to investor-owned utilities, which are required to file net metering reports with the IURC on an annual basis. For more information on the breakdown of numbers by utility, please visit: www.in.gov/iurc/files/2011_Net_Metering_Reporting_Summary.pdf.

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The Indiana Utility Regulatory Commission is a fact-finding body that hears evidence in cases filed before it and makes decisions based on the evidence presented in those cases. An advocate of neither the public nor the utilities, the IURC is required by state statute to make decisions that weigh the interests of all parties to ensure the utilities provide adequate and reliable service at reasonable prices.

Source: Indiana Regulatory Commission

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Celebrate Pi Day!

Posted on March 14, 2012 by ccobb

Celebrate Pi Day – March 14th

Mmmm. Pi Day! The nerdy holiday celebrated by math geeks worldwide. This is the day we gather around to celebrate that amazing little (long) number, pi.

Pi, approximately 3.14159, is the mysterious mathematical constant (number) that represents the ratio of any circle’s circumference to its diameter.

Pi has its day, appropriately, on March 14 (3/14). Often a Pi Day celebration will have an extra special event set for pi minute (at 1:59pm). In the UK, Pi Approximation Day is often celebrated on July 22 (22/7) as 22 divided by 7 is an approximation for pi.

This day brings more fun to math classes around the world then anything else (second only to Math League). I wish you a very Happy Pi Day 2012!

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Happy Leap Day!

Posted on February 29, 2012 by ccobb

Once every four years Leap Year comes…but why? It turns out ancient Egyptians discovered it takes the Earth a little longer than a year to travel around the Sun—365 days, 5 hours, 48 minutes, and 46 seconds to be exact.

So, what will you do with the extra day?

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Good news on U.S. housing and employment is positive for Canada as well

Posted on February 24, 2012 by ccobb

Alex Carrick, Canadian Chief Economist

U.S. home starts in January climbed to 699,000 units seasonally adjusted and annualized, according to a joint press release from the Census Bureau and the Department of Housing and Urban Development.

The nearly 700,000 figure was a relatively modest 1.5% gain month to month, but a more impressive 9.9% increase year over year.

Residential building permits displayed a similar pattern of improvement, +0.7% month to month and a big 19.0% jump year over year.

January is too early in the year to draw too many conclusions about the regional and type of structure (i.e., singles versus multiples) markets. Just the same, most experts believe that the multiple-unit sector is where the recovery will be apparent first.

The primary cause will be a strong rental market tying into where many of the new jobs are going – often to young people leaving university with high-tech skills and wanting to set up their first homes.

Looking deeper into the total package of results published in January reveals another reason to think the market may be improving faster than expected.

There have been substantial revisions to previous estimates.

The largest revisions usually occur at a time when a sharp swing is underway, either up or down.

The reason is because there is almost always a “more of the same” bias built into the calculation of many statistical series. This is especially true when missing portions of a series are filled in with estimates.

It can take a month or two for a dramatic shift to be spotted and captured.

In the latest month, the starts figure reported for the Midwest in December of 144,000 units was bumped up by 28,000 to a revised figure of 172,000 units, seasonally adjusted and annualized.

That’s a much larger than normal revision of +19%.

Total U.S.-wide single-family starts in December were increased by a whopping 43,000 units to move to 513,000 from 470,000.

The bottom line is that in January, the December total was raised by 32,000 units to climb from 657,000 to 689,000.

This is after November was increased by 17,000 units to a new level of 702,000 from 685,000.

The 702,000-unit figure for November is significant for another reason. It’s now the highest level of starts since October 2008, which was just after Lehman Brothers fell into bankruptcy and the global credit crunch began with a vengeance.

Furthermore, other indications of an improving U.S. homebuilding sector have been emerging.

For example, the National Association of Home Builders (NAHB), in association with Wells Fargo, has been calculating and publishing a sentiment index for the past 20 years.

This Housing Market Index (HMI), which looks at home-builder confidence in the single-family market, increased in January to its highest level in more than four years.

The index value has doubled since last September. It now stands at 29 in a range between 0 and 100. The NAHB, while encouraged by the latest measurement, has also issued several cautionary notes.

For one thing, the level is still very low. A figure of 50 or higher is needed before homebuilders can be said to view conditions as good rather than poor.

Valuations of new homes are often still falling below construction costs. Foreclosed properties are continuing to offer stiff sales competition to newly completed homes. And many prospective buyers are being denied mortgages due to too strict approvals processes.

On the subject of foreclosures, one big uncertainty has been removed for lending firms.

The 50-state commission assigned the task of deciding what action should be taken against several of the largest mortgage lenders, for too-quick and lax administrative procedures when initiating foreclosure action, has come down with a ruling.

The punitive dollar amounts have been determined and they will be a combination of penalties paid to the states and recompense in various forms made to owners who were unfairly driven from their homes. The ruling does not eliminate the possibility of individual civil lawsuits.

The irony is that the pace of foreclosures may actually pick up for a while, since banks put some of their loan reclamation practices on hold pending a determination of their legal damages.

However, definitely acting to lift the outlook for the home-building sector are the latest employment results. The number of jobs in the U.S. has increased by one million over the past six months. There are strong indications this trend will continue.

Initial jobless claims for the latest week ending February 11 were the lowest since before the recession. They were -13,000 versus the week before and fell to a level of only 348,000. In the recession, the figure consistently sat above 500,000 and rose as high as 656,000.

The latest week is the first time new unemployment insurance claims have been below 350,000 in four years.

A continuation of this pace will mean a third consecutive monthly employment gain of at least 200,000 – i.e., December was +203,000 and January, +243,000 – when February’s labor market report is issued in early March.

In Canada, the recent economic news has been somewhat upbeat as well, partly due to the spillover effects from the improved circumstances in the U.S.

For example, manufacturing sales in December were +0.6% month to month and +9.1% year over year, according to Statistics Canada. Those figures are based on seasonally adjusted current (i.e., no account taken for inflation) dollars.

Total manufacturing sales are now almost level with where they were in October 2008, the first month of the recession in Canada. They have increased in five of the past six months, with the motor vehicle industry in the vanguard.

Sales by motor vehicle manufacturers, in large part to satisfy demand from south of the border, are at their highest monthly level since November 2007.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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