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.


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.


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%.


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.


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.


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.


Working at Home: Who Claims the Home Office Deduction?

April 10, 2014

Often cited as a “red flag” for audits, the home office deduction is in fact a legitimate business deduction with particular importance for certain careers and small business owners. Moreover – from the housing economics perspective – IRS data concerning the deduction, along with Census data reporting who works at home, can shed light on an important and growing role for homes: workplaces for business owners and telecommuters.

There’s no doubt that the practice of working at home is on the rise. According to data from the Survey of Income and Program Participation, in 1997 7% of workers (9.2 million individuals) reported working at home at least one day a week. By 2010, that total had grown to 9.4% (13.4 million), an increase of more than four million or 35%.


The geographic distribution of those workers who primarily work at home (most days) shows interesting geographic clustering. Using data from the 2012 Census Bureau American Community Survey, the map above charts the share of the workforce (age 16 and over) who report working at home. The highest shares are found in the West, the Northwest, the Upper Midwest and New England. The state of Vermont has the highest share (7.1%), followed by Montana (6.5%), Colorado (6.5%), and Oregon (6.3%). Louisiana has the lowest share at 2.3%.

The reasons behind this geographic distribution are not immediately clear. Potential explanations include the geographic distribution of jobs that are more likely to include or allow at-home employment, weather, age/education differences in the workforce, and less quantifiable differences in workplace culture across states. Regardless, the growth of working-at-home represents a business opportunity for both remodelers and builders to help accommodate homes for this growing purpose.

The most recent industry-specific IRS data available (2010) for the home office deduction for independent contractors and sole proprietorships (Form 8829) (not telecommuters) provides a sense of who is using space in their home for a dedicated office.

home office deduction

Not surprising, workers in industries that involve more individual independence or technology tend toward greater use of the deduction. For example, educators, the information technology sector, professional services (lawyers, accountants, architects, etc.), and those in the arts and entertainment sectors are all more likely to claim the home office deduction. The real estate sector is in the middle category, with many Realtors reporting home office expenses. Home office deductions are less common in the construction sector, although many small construction firms do have home office expenses.

Specific sectors with high levels of home office deduction use include textile producers, electronics producers, nonstore based retailers, publishers, video/audio producers, broadcasters, internet based workers, certain financial workers, real estate brokers, appliance and video rental services, CPAs, architects, engineers, drafters, building inspectors, designers, science and business consultants, advertisers, marketers, business administrators, educators, doctors, social workers, actors, and religious and professional organization workers.

Overall, according to IRS data for tax year 2011 $9.8 billion in home office expenses (insurance, rent, repairs and utilities) were claimed on IRS Form 8829. The deduction is split into two classes: direct expenses related to the actual officer and indirect expenses that apply to the home as whole and are only partially deductible. Approximately 6 out of every 7 dollars claimed as a deduction originate from this indirect class. An additional $1.3 billion in home office related depreciation deductions was claimed in 2011.

Taxpayers who are likely to claim the deduction, including small business owners (builders and remodelers) and Realtors, should be aware of the rules. The IRS has a good summary page on the deduction. More details can be found in IRS Publication 587, which includes the following useful flowchart regarding qualifying.

IRS Figure A_Pub587

From a tax law perspective, two key changes are worth noting. First, in 2013 the IRS provided a simplified method for claiming the deduction, which can save taxpayers time in filing the required form. Under this approach, taxpayers may claim a $5 per square foot of home office space (up to a maximum of 300 square feet), other expenses such as mortgage interest and real estate taxes are claimed on Schedule A, and no depreciation deduction (or future recapture) is allowed.

Second, for those who have often heard about strict tests connected to the deduction, do keep in mind tax law changes made in 1997 that went into effect in 1999. Under the Taxpayer Relief Act of 1997, a residence can qualify as a principal place of business when it is used to conduct administrative or management activities if there is no other fixed business location. This change clarified a lot of uncertainty regarding the deduction for many classes of workers. However, for all taxpayers (homeowners and renters), the office space must be exclusively used for business purposes.

Telecommuting employees are less likely to be able to claim the deduction (they must itemize for example), and should consult IRS Form 2106 for additional detail.

Top Metro Areas – Median Income and Home Value

April 9, 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 two of those statistics; the median household income and median value of owner-occupied housing units.

The key to housing affordability is that the market meets the needs of the people who provide services we depend on such as teachers, police officers, firefighters, and health care workers. There are two critical components of housing affordability; income and housing costs.

According to the 2012 ACS, the median household income of owner-occupied housing in United States is $65,514. The metropolitan area where homeowners have the highest median income is San Jose-Sunnyvale-Santa Clara, CA at $115,297. The top employers in this metropolitan area include tech giants such as Cisco Systems, eBay, IBM, and Adobe Systems. Three of the top ten median homeowner income metropolitan areas are in California.

High income metropolitan areas tend to be in higher population areas. Eight of the top ten median homeowner income metropolitan areas have populations greater than 1 million.


There is also a relationship between income and home values. Three metropolitan areas in figure 1 also appear in figure 2.


According to the 2012 ACS, the median value of owner-occupied housing in United States is $171,900. The metropolitan area with the highest median home value is San Francisco-San Mateo-Redwood City, CA at $719,800. Eight of the top ten metropolitan areas are in California.

Nine of the ten metropolitan areas with the highest home values have homeownership rates well below the national figure. The national homeownership rate is 63.9% according to the 2012 ACS.

The metropolitan area with the lowest median home value is Brownsville-Harlingen, TX at $75,700. The metropolitan areas with the lowest home values have homeownership rates that exceed or approach the national figure.


  • 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


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