New Homes are Less Expensive to Maintain

April 17, 2014

April is new homes month. And one of the virtues of a newly constructed home is the savings that come from reduced energy and maintenance expenses.

In a previous analysis, we used data from the 2009 American Housing Survey (AHS) to offer proof. The AHS classifies new construction as homes no more than four years old.

For routine maintenance expenses, 26% of all homeowners spent $100 or more a month on various upkeep costs. However, only 11% of owners of newly constructed homes spent this amount. In fact, 73% of new homeowners spent less than $25 a month on routine maintenance costs.

monthly maint costs

Similar findings are available for energy expenses. According to the 2011 AHS, on a median per square foot basis, homeowners spent 81 cents per square foot per year on electricity. Owners of new homes spent less: 68 cents per square foot per year. For homes with piped gas, homeowners spent on average 50 cents per square foot per year. Owners of new homes spent just 34 cents per square foot per year.

The 2011 data show similar results for various other utilities. For water bills, homeowners averaged 28 cents per square foot per year, while owners of new homes averaged 22 cents.  For trash bills, the median for all homeowners was 15 cents per square foot per year, while for new construction the median was 13 cents per square foot per year.

These data highlight that a new home offers savings over the life of ownership due to reduced operating costs. And in fact, these reduced costs result in lower insurance bills as well. The median cost for all homeowners of property insurance is 39 cents per square foot, while it is only 31 cents per square foot for owners of new homes.

These reduced expenditures represent one of the many reasons that the current system of appraisals needs updating to reflect the flow of benefits that come from features in a new home.


Eye on the Economy: Builder Confidence Flat As Winter Ends

April 16, 2014

Single-family Starts and NAHB

An unseasonably cold winter took its toll on economic activity at the start of 2014, causing many key market measures to fall short of initial forecasts. For example, first quarter GDP growth will likely prove to have been less than 1%. However, as winter turns to spring, we can expect a rebound as consumers undertake activities that may have been deferred at the start of the year.

Consistent with this situation, the NAHB/Wells Fargo Housing Market Index (HMI) was effectively flat in April, rising one point from a downwardly revised March level. At 47, the HMI has now been below the key level of 50 for three consecutive months.

The essentially unchanged index is the result of builders waiting on expected spring demand while holding any further optimism until actual sales occur. Many of the individual comments mentioned stronger traffic or more serious buyers, but the interest has yet turned into contract signings. Builders continue to meet some supply constraints as buildable lot supply either is not available or is priced beyond what the builder feels can be recaptured in a sale.

Housing starts for the month of March, as reported by the Census and HUD, indicated a 2.8% increase from the upwardly revised February numbers. On a seasonally adjusted annual basis, total single-family starts rose 6% to a 635,000 annual rate. The increase was particularly strong in the Northeast and Midwest, where building was down during recent winter months.

Builder hiring increased in March. According to data from the Bureau of Labor Statistics (BLS), the residential construction sector added 9,100 jobs on a seasonally adjusted basis in March. Total industry employment now stands at 2.242 million. And over the last 12 months, builders and remodelers have created 103,000 jobs.

Worker shortages remain an issue in some markets. However, the count of unfilled construction-sector jobs fell at the start of 2014. As of February, data from the BLS JOLTS survey indicate there were 120,000 open positions at construction firms, down from 165,000 in November. Nonetheless, the February open rate (2%), as measured as a percent of total industry employment, remained the fifth-highest mark since the recession ended.

The general improvement for housing markets can be tracked using the NAHB/First American Leading Market Index (LMI). The index, which measures how close markets are to their normal levels of activity, increased from 0.87 to 0.88 in April. The index measures single-family permits, home prices and employment in the past 12 months and divides that by the last normal annual level. For permits and prices, the last normal period is 2000-2003 and for employment 2007.

The LMI has been moving steadily upward for two years from a low of .78 in April 2012. At the same time, the number of markets at or above their last normal level of activity increased from 34, with 19 in energy-producing states, to 59, with 30 in energy-producing states (Texas, Louisiana, Montana, North Dakota, Oklahoma and Wyoming). The slight broadening into states with other economic bases is consistent with broader economic growth in the U.S.

March BLS producer price data signals building material cost concerns as the housing recovery continues. Gypsum prices were effectively flat in March (0.9% decline), after a significant increase at the start of the year — the third year in a row of such prices increases. Gypsum prices are up 9.5% year over year. Softwood lumber products increased 1.7% in March, while OSB prices were effectively flat.

Over the past 12 months, prices on consumer expenditures increased 1.5%. Consumer prices increased in March by 0.2% on a seasonally adjusted month-over-month basis. The real rent index increased in March by 0.1% month over month and 1.2% for the year.

In analysis news, NAHB economists continued their look at home buyer preferences. The last review found that buyers of all backgrounds possess strong preferences for energy-efficient products.

Using IRS and Census data, economists examined the rising – although still small – market share of individuals who work at home, which represents a potential market opportunity for builders and remodelers. The data indicate clear geographic clustering of home office use among states and industries.

Finally, wrapping up NAHB’s ranking of metropolitan housing markets, American Community Survey data indicate the top markets in terms of share for new construction, home values and median income.


Housing Starts Reverse Winter Slump

April 16, 2014

Census and HUD reported March housing starts were up 2.8% from an upwardly revised February. Single-family starts accounted for all of the increase, rising 6% to 635,000 on a seasonally-adjusted annual basis. The increase was particularly strong in the hardest hit northern US of the Northeast and Midwest regions where single-family starts increased 39% and 29% respectively.

Housing permits dropped 2.4% virtually all in the multifamily apartment sector. Multifamily permits (in buildings with 2 or more units) were 398,000 (on a seasonally-adjusted annual basis), about the same as the fourth quarter of 2013. February was unusually high at 425,000 so the fall in March was an adjustment to an unsustainable level than a reversal in apartment construction.

The modest recovery in single-family construction after an unusual winter reflects builders continued caution as the overall economic expansion moves slowly forward. Housing conditions are right for continued growth in housing construction and sales. But consumers’ economic condition and expectations remain uncertain enough that committing to a large and long-lasting purchase like a home remains tentative. Builders, consequently, are reflecting that same caution.

In an April survey, the leading reason builders gave for consumer hesitancy was buyers worried about their employment and economic situation at 47% of all builders. The share is down from over 70% in 2009. The second leading reason for consumer hesitancy is that the prospective buyer cannot sell their existing home, also down significantly from over 80% in 2009 but still high. These top reasons are somewhat circular in that the likely reason current home owners feel they will have trouble selling their home is their prospective buyer is uncertain about their economic future.

Hence, as the employment market continues to improve (NAHB forecasts 1.6% increase this year) and consumer confidence continues to improve, these hesitancies will dissipate and housing sales and construction will move forward at a modest pace. NAHB expects a 17% increase in construction in 2014.

Housing Starts


Natural Gas Prices Increase Sharply in March

April 15, 2014

Over the past 12 months, according to data released by the Bureau of Labor Statistics (BLS), prices on expenditures made by urban consumers increased 1.5% before seasonal adjustments. Consumer prices increased in March by 0.2% on a seasonally adjusted month-over-month basis.

Two important components of the residential utility bill (natural gas and electricity) increased in March. The natural gas index, a component of the energy price index, increased sharply month-over-month by 7.5%. This was the largest month-over-month increase since October 2005. Over the past twelve months the natural gas index increased by 16.4%. The electricity index increased month-over-month by 1.1% and 5.3% over the past twelve months.

The energy index fell for the second consecutive month by 0.1% on a month-over-month seasonally adjusted basis. The increases in natural gas and electricity were offset by a decrease in gasoline and fuel oil; all components of the energy index.

For the second consecutive month, the food index rose by 0.4%. Over the past twelve months, the food index increased by 1.7%. The index for meats, poultry, fish, and eggs increased 5.1% over the past twelve months.

The core CPI rose by 0.2% on a seasonally adjusted month-over-month basis and 1.7% for the year before seasonal adjustments. The Core CPI excludes more volatile food and energy prices.

Chart_1

The shelter index rose 0.3% month-over-month in March after increasing 0.2% in February.  Over the past twelve months, the shelter index increased 2.7% before seasonal adjustments.

Because shelter costs represent a large share of the average consumer’s expenditures, a 0.3% month-over-month increase is worth exploring further. Although the increase in the shelter index partly reflects increases in rental prices, the BLS measure does not isolate the change in rental prices from the changes in the overall price index. NAHB constructs a real rent price index to isolate the change in rental prices. The NAHB constructed measure indicates whether inflation in rents is faster or slower than general inflation and provides some insight into the supply and demand conditions for rental housing, after controlling for overall inflation. The real rent index increased in March by 0.1% month-over-month and 1.2% for the year.

Chart_2


Builder Sentiment Steady

April 15, 2014

The March NAHB/Wells Fargo Housing Market Index rose one point from a one-point downwardly revised February to 47. This is the third consecutive month with the index below 50, the point where more builders see the market improving rather than getting poorer. Two of the three components of the index remained unchanged; the current sales index was at 51, the same as the one-point downwardly revised February index and the traffic index was 32, which is the same as the one-point downwardly revised February component. The heaviest weighted sub-index is the expectations for the next six months, which was up four points to 57.

The essentially unchanged index is the result of builders waiting on expected spring demand while holding any further optimism until actual sales occur. Many of the individual comments mentioned stronger traffic or more serious buyers but the interest has yet turned into contract signings. Builders continue to meet some supply constraints as buildable lot supply either is not available or is priced beyond what the builder feels can be recaptured in a sale.

Access to credit continues to be a concern across all parts of the country as builders search for credit to buy land and build homes and consumers apply for mortgages. A recent NAHB survey of builders found some improvement in builders’ access to capital and FDIC quarterly reports finally show some increase in bank holdings of AD&C residential credit. Lot supply will take longer to solve but access to credit is a critical first step. The housing recovery is likely to be hindered by these limitations just as demand begins to resurge.

NAHB expects 1.1 million housing starts in 2014 primarily driven by the pent up demand of existing home owners. The first-time home buyer will return more gradually as mortgage credit standards become more rational and young adults’ incomes stabilize and grow.

Single-family Starts and NAHB


Top Metro Areas – Owner-Occupied Units Built Since 2000

April 14, 2014

In a recent study, NAHB examines eight key housing statistics from the 2012 American Community Survey (ACS). This post takes a closer look at one of those statistics; the share of new owner-occupied units.

The share of new owner-occupied units is calculated by taking the total number of owner-occupied housing units built since 2000 divided by the total number of owner-occupied housing units. The number indicates how fast the stock of owner-occupied housing is growing.

The metropolitan area with the highest share of new owner-occupied units is Palm Coast, FL with 46.3%. The Palm Coast figure is well above the national share of new owner-occupied units of 17.0%.

Figure_1_High

The metropolitan areas with the highest share of new owner-occupied units are scattered from Delaware to Utah.  Three of the ten have a population greater than 1 million while four have a population below 200,000. The demand for new housing depends on factors including population and income growth.

The metropolitan area with the lowest share of new owner-occupied units is Binghamton, NY with 4.2%. Four of the ten metropolitan areas on the list are located in New York.

Figure_2_Low

The relatively low demand for new housing in part reflects an aging population.  The aging population represents a challenge for new home builders in these local metro areas but a significant opportunity of remodelers to meet the needs of a population with an aging housing stock.

  • The complete series is provided below.
  1. Eye on Housing – Top Ten Metro Areas – Owner Occupied Housing Units
  2. Eye on Housing – Top Ten Metro Areas – Homeownership Rate
  3. Eye on Housing – Top Ten Metro Areas – Vacancy Rates
  4. Eye on Housing – Top Ten Metro Areas – Single-Family Concentration
  5. Eye on Housing – Top Ten Metro Areas – Median Income and Home Value
  6. Eye on Housing – Top Ten Metro Areas – New Construction

Producer Price Index Up for March

April 11, 2014

The Producer Price Index (PPI) – a broad measure of the prices received by domestic producers of goods and services – increased in March, according to data from the Bureau of Labor Statistics.

The overall PPI increased 0.46% on a seasonally adjusted basis for the month of March, higher than analyst expectations. The PPI for goods was flat, with the increase in the headline PPI due to a month-over-month 0.65% for the PPI for services. On a non-seasonal adjusted basis, producer prices have increased 1.37% over the last 12 months, which while currently tame may suggest higher prices ahead.

March_PPI_v2

Among home building materials, gypsum prices were down 0.9% for the month of March, after significant increases in February (4.1%) and January (7.4%).  Softwood lumber products increased 1.7% in March, while OSB prices were effectively flat.

On a year-over-year basis, gypsum prices are up 9.5%, while softwood lumber prices are down slightly from a price peak set at the beginning of 2013. OSB prices are down nearly 40% from a significant run-up in price that began in 2012 but subsided at the end of 2013.

One conclusion that can be reached from recent years’ data is that the prices of major building materials tend toward volatility as home building expands. Rising and unpredictable building material prices represent yet another potential headwind along the overall path of recovery for the residential construction sector.

 


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