***Eye on the Economy is a biweekly survey of NAHB’s economic and housing analysis.
The rebound of home building has been slowed, in part, by the tight availability of acquisition, development and construction (AD&C) loans. However, easing credit conditions and a growing loan base should help expand the residential building market.
According to NAHB analysis of FDIC data, the volume of residential construction loans expanded 4.5% during the final quarter of 2015, marking the 11th consecutive quarter of growth. On a year-over-year basis, the stock of residential construction loans is up 18.9%. This change suggests accelerated growth in 2016 for single-family building, consistent with NAHB’s forecast.
While builders continue to report easing lending conditions, recent NAHB survey data reveals a slowdown in the pace of that change. And a Federal Reserve survey of overall commercial real estate lending practices indicates tightening conditions among lenders. These changes are worth watching in the future, particularly for multifamily developers.
NAHB’s Multifamily Production Index showed a slight weakening of sentiment among multifamily builders and developers in the fourth quarter of 2015, dropping four points to 52. Despite its decline, the index is still above the break-even point of 50, and has been at or above this threshold for 16 consecutive quarters. A reading above 50 indicates that more respondents report conditions are improving than the number of those who report conditions are worsening.
Construction spending estimates from the Census Bureau reflect the recent strength of the multifamily development sector. As of January 2016, total multifamily spending was at a seasonally adjusted annual rate of $59.8 billion, 30% higher than a year ago and exceeding the peak readings registered during the housing boom years. Total private residential construction spending was up 7.7% in January from one year earlier and the highest since November 2007.
The new edition of the NAHB Leading Markets Index (LMI) reveals that the recovery for residential construction continues at a slow and steady pace. The national index rose to .94 in the fourth quarter of 2015, .01 point higher than its level in the third quarter of 2015 and .04 point higher than its level from one year ago. A value of 1.0 indicates the housing market is back to a “normal” level of baseline conditions in terms of single-family permit activity, employment and home prices. The number of metropolitan statistical areas (MSAs) whose permits score reached or exceeded 1.0 totaled 41, an increase of eight MSAs above the previous quarter’s total, and 17 more than one year ago.
Continued job growth will help will promote additional home building. The Bureau of Labor Statistics reported payroll employment expanded by 242,000 in February, with an additional 30,000 added in prior month revisions. The unemployment rate was unchanged at 4.9% as a result of large gains in both the labor force (555,000) and the number of employed persons (530,000). The labor force participation rate has gained 0.5 percentage point in recent months, reaching 62.9%, still low but erasing declines registered in 2015.