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


Housing Construction Holds Steady

March 18, 2014

The unusual weather that kept builders out of the field continued into February and kept starts below their expected levels.

February housing starts were virtually unchanged from slightly upward revised January figures for both total starts as well as single-family and multifamily. Total housing starts were 907,000 on a seasonally-adjusted annual basis, nearly identical to 909,000 in January, which was revised upward from 880,000. Single-family starts were 583,000, up 2,000 from January and multifamily came in at 324,000, down 4,000 from January.

Regionally, single-family starts remained well below 2013 totals in the Northeast and Midwest while above last year in the South and West. The regional differences match the location of the worst below-average temperatures and above-average snow falls and support the explanation of a weather effect rather than a shift in the housing market.

Less weather-dependent permits were up almost 8% to 1,018,000, the fourth month over one million in the past year and second only to October 2013 since June 2008. Single-family permits were down almost 2 percent to an annual level of 588,000, due to a 13,000 drop in the West. Multifamily permits, on the other hand, rose 24 percent to 430,000, their highest level since May 2007.

Single-family completions continued to follow a general increasing trend rising to 631,000, the highest since December 2008 as builders continue to restock their depleted inventory in preparation for the spring selling season. Limited buildable lot and skilled labor supply have caused builders to slow production in some markets and lengthen their construction time in order to meet demand.

Housing Starts Feb 2014


Housing Starts Drop in January

February 19, 2014

The pace of new home construction declined sharply in January, mirroring the drop in the February NAHB / Wells Fargo Housing Market Index (HMI). Regional data and builder surveys suggest weather played a large role.

Following the ten point drop in the HMI to a level of 46, total housing starts declined 16% to a seasonally adjusted annualized rate of 880,000 in January per the Census Bureau and the Department of Housing and Urban Development. Single-family starts were down 16% and the production of homes in 5+ unit multifamily properties was lower by 13%.

These declines come after upward revisions to the December report, which was increased to a 1.048 million annual rate for total housing starts. The volatility of housing starts has increased since October as multiple factors affected the construction of new homes.

Jan SF starts and permits

Regional data confirm that weather played a large role in the decline for January. The pace of midwest single-family starts (seasonally adjusted) declined 60% from December to January and was 50% lower compared to January 2013.

Midwest.png

Permit data also suggest that recent declines in starts may be a temporary delay of planned housing construction given unseasonably cold temperatures in the eastern part of the country. In contrast to the 16% reduction in single-family starts in January, single-family permits were down only 1.3% for the month and were 4% higher year-over-year. In the weather impacted midwest, single-family permits were down only 3%.

That said, there are other headwinds affecting home builders that can produce a start-and-stop monthly impact on the otherwise improving trend for home construction. These factors include access to labor and developed lots, as well as recent increases in building material prices.

The January decline in single-family permits across all regions is likely an indicator of such non-weather related supply chain problems. That said, such challenges can be exacerbated by weather events that prevent construction crews from working or building materials from arriving at building sites. Weather events that last only a few days in a month can lead to such delays and disruptions.


Single-Family Built-for-Rent Market Continues Decline

January 9, 2014

Single-family starts built-for-rent were down sharply on a year-over-year basis, falling to only 6,000 starts for the third quarter of 2013 compared to 11,000 a year prior, the highest quarterly tally since 2003. While the market share of built-for-rent single-family units remains elevated, the share appears to be declining off post-Great Recession highs.

According to data from the Census Bureau’s Quarterly Starts and Completions by Purpose and Design, the market share of single-family homes built-for-rent, as measured on a one-year moving average, stands at 4% for the third quarter of 2013. This remains significantly higher than the historical average of 2.8%, but is down from the 4.9% registered in the second quarter.

SF built for rent_3q_13

With the onset of the Great Recession, the share of built-for-rent homes rose, with a dip in the percentage during the homebuyer tax credit period.

Despite the elevated market concentration, the total number of single-family starts built-for-rent remains fairly low – only 23,000 homes started during the last four quarters.

Of course, the built-for-rent share of single-family homes is considerably smaller than the single-family home portion of the rental housing stock, which is 29% according to the 2011 American Community Survey. The reason for this is that as single-family homes age, they often transition to the rental housing stock.


Townhouse Market Share Drops

January 7, 2014

Total townhouse construction declined slightly on a year-over-year basis during the third quarter of 2013, per Census data of Starts and Completions by Purpose and Design.

Single-family attached starts totaled 17,000 for the quarter, compared to 21,000 during the third quarter of 2012. Over the period spanning the fourth quarter of 2012 through the end of the third quarter of 2013, 69,000 townhouses began construction.

Using a one-year moving average, the market share of townhouses now stands at 11.6% of all single-family starts, down from 12.1% for the third quarter of 2012. The current market share is down significantly from the second quarter of 2013 (12.5%).

townhouse_3q_13

The peak market share of the last two decades for townhouse construction was set during the first quarter of 2008, when it reached 14.6%. This high point was set after a fairly consistent increase in share beginning in the early 1990s.

Despite the drop in market share during the Great Recession, I expect the share for townhouse construction to increase in coming years with occasional ups and downs. For example, the market share may be on the decline for the near term, given the ongoing rebound in the overall single-family construction sector and reduced levels of first-time homebuyers.

Nonetheless, the prospects for townhouse construction over the long run are positive given large numbers of homebuyers looking for medium density residential neighborhoods, such as urban villages that offer walkable environments and other amenities.


Owner/Contractor Built Housing Market Share Flat

January 6, 2014

The market share of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, was effectively flat on a quarter-over-quarter basis.

Census Data from the Quarterly Starts and Completions by Purpose and Design survey indicate that the number of starts of this type of custom home building rose slightly by count from the third quarter of 2012 (36,000 starts) to the third quarter of 2013 (39,000 starts).

However, as the rest of the single-family construction market expanded, the market share of owner and contractor built housing has fallen significantly. As measured on a 1-year moving average, the market share has fallen to 21.9%, down from a cycle high of 31.5% set during the second quarter of 2009. In fact, the 1-year moving average has now fallen for six consecutive quarters, although these declines have slowed recently. The 1-year moving average fell from 22% in the second quarter to 21.9% in the third.

owner_contractor built_3q13

The onset of the housing crisis and the Great Recession interrupted a 15-year long trend away from homes built on the eventual owner’s land. However, as housing production slowed in 2006 and 2007, the share of this not-for-sale new housing increased even as the number of starts declined. The share increased because the credit crunch made it more difficult for builders to obtain AD&C credit and for home buyers to obtain mortgage financing, thus producing relatively greater production declines of for-sale single-family housing.


Top Posts of 2013: Regional Lot Size Differences

December 24, 2013

With the end of 2013 approaching, NAHB’s Eye on Housing would like to take a look at the updates that attracted the most readers over the last year.  In October, we examined the regional differences in lot sizes for new single-family homes.

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According to data from the Census Bureau’s Survey of Construction (SOC), the median size of lots on single-family homes started in 2012 was three-quarters of an acre in the New England Census Division (Massachusetts, Maine, New Hampshire, Vermont, Rhode Island, and Connecticut).  This is significantly larger than the median lot size on homes started in the other eight Divisions.

In the Middle Atlantic Area (New Jersey, New York, Pennsylvania), for instance, the median lot size was 0.29 acres.  In the Midwest, the median lot size in East North Central (Illinois, Indiana, Michigan, Ohio, and Wisconsin) and West North Central (Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) was 0.38 acres and 0.23 acres respectively. Among the southern states, the East South Central (Alabama, Kentucky, Mississippi, and Tennessee) had the highest median acre lots of 0.40 acres, followed by South Atlantic Area (Delaware, District of Columbia, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia) with a median of 0.25 acre lot and the West South Central Area (Arkansas, Louisiana, Oklahoma, Texas) with 0.18 acres.

The Mountain Division (Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, and Wyoming) where the median lot size consists of 0.18 acres, the Pacific Division (Alaska, California, Hawaii, Oregon, and Washington) had median lot of 0.14 acres.

The median size of lot for new homes started was analyzed rather than the average.  The average tends to be heavily influenced by extreme values, some of which are truncated on the public use SOC data set available from the Census Bureau.  As it is based only on lot sizes in the middle of the distribution, the median is less sensitive to these problems.

The map below shows the lot size (in median acres) for single-family homes started in 2012 by census divisions:

3rdBlogFigure1LotSizeNEW101513


Home Building Passes One Million Mark

December 18, 2013

November housing starts and permits reported by Census and HUD were over the one million mark in November. Except for a brief breech of that mark in early spring, home construction has not been over one million since 2008. Single-family starts rose to 727,000, a 20.8% increase over October and the highest since December 2007. Multifamily starts rose to 364,000, a 26.8% increase over October.

Three of the four Census regions also saw significant increases in both total and single-family starts; the Midwest led with a 41.7% increase in total starts to 214,000, the highest since August 2007. The South increased 38.5% to 558,000, the highest since February 2008. The West increased 8.8% to 216,000 and the Northeast fell 29.4% but from a five year high in October.

Permits were also over 1 million for the third month in 2013. The November level was down 3.1% from a peak of 1,039,000 in October, which was a five year high. Single-family permits were up 2.1% to 634,000, the highest since April 2008 and multifamily permits were down 10.8% to 373,000 have reaching a six and a half year high in October.

The bounce back in starts comes as home buyers reenter the market from the uncertainty caused by a spike in mortgage rates and the government shut down and confusion in October. The government release of starts was delayed because of that shutdown so the rise in starts that began in October was not revealed until the December release when starts for September, October and November were first reported.

The November catch-up report bodes well for the year end totals and for leading into 2014. Home prices are rising because of the low inventories of both new and existing homes. Mortgage rates are rising but will remain low by historic standards. Employment is increasing more consistently providing added confidence to leery home buyers that the economic recovery will continue. The US Congress appears to have solved at least one of the lingering issues that caused a pause in the markets in October. As uncertainties diminish, housing conditions continue to improve and pent-up demand remains high, the housing market will continue to improve albeit at a modest pace.

Total and Single-family Starts


Builders Absorb Consumer Concerns

October 16, 2013

The October NAHB/Wells Fargo Housing Market Index fell two points to 55 from a one-point downwardly revised September level of 57. The decline was broad based with a two-point fall in all three components: current sales from 60 to 58, expected future sales from 64 to 62 and traffic from 46 to 44. The index has remained above the tipping point of 50 for five consecutive months.

The survey is taken in the first 10 days of the month when Washington remained mired in complete disagreement over the debt and budget deadlines. Consumer confidence indicators and builders’ comments in this survey suggest that the uncertainty has caused buyers and builders to pause until these deadlines are settled.

Builders continue to be slowed by higher costs of building materials, building lots and construction labor while confronting downward price pressures from low appraisals. Consumers continue to have difficulty obtaining a mortgage. In a recent survey, 57% of builders said they had lost a sale because the buyer could not qualify for a mortgage.

The Census Bureau and HUD remain closed so a housing starts estimate for September will not be delivered at 8:30 am on October 17 as scheduled. NAHB has produced a monthly estimate for September starts based on our knowledge of the industry, the results from the HMI and our daily contact with builders. NAHB’s estimate for September starts is between 875,000 and 900,000. Single-family starts showed some new life in August after a pause that began in April before interest rates spiked. Single-family starts should remain in the August range of 620,000 to 630,000. Multifamily starts bounced around in 2013 in a monthly seesaw effect typical of the more volatile series. NAHB expects multifamily to range at the lower end of this years’ span at between 255,000 and 270,000.

October HMI


Single-Family Starts Save the Day

September 18, 2013

Housing starts rose 0.9% in August pushed by a solid 7% increase in single-family starts and tempered by an 11% fall in multifamily starts. The single-family increase was broad; all four census regions showed increases ranging from 17.5% in the West to 2.3% in the South. Monthly multifamily starts have saw-toothed up and down for several months with four up months and four down months in 2013.

Housing permits demonstrated the same signal with single-family permits up 3% nationally and up or unchanged in every region. August single-family permits at 627,000 are the highest since May 2008. Similar to starts, multifamily permits were down 15.7% to an annual level of 291,000. The three month moving average, a more stable measure of multifamily, has remained above 300,000 since the middle of last year.

The solid single-family report provides additional evidence of the slow but steady improvement in single-family owner-occupied construction that begin in earnest in early 2012. The seasonally-adjusted construction rate increased 36% since January 2012. Even with the steady rise, single-family starts remain at less than half a normal rate of 1.4 to 1.5 million per year. The broad increase across four regions in permits and starts is a solid signal that builders do see continued improvement. NAHB is forecasting a 17% increase in single-family construction in 2013 over 2012 and a more robust 31% increase in 2014.

Single-family Starts and Permits


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