Eye on the Economy: Cold Start for 2014


Weather and supply chain issues took a toll on home builder confidence and housing production at the start of 2014. The February NAHB/ Wells Fargo Housing Market Index fell 10 points to 46, dropping below the key 50 threshold for the first time since May 2013. The decline is the largest in the 30-year history of the index.

Mirroring the drop in the HMI, January housing construction also declined, as reported by the Census Bureau and HUD. The pace of total housing starts was down 16% for the month to an 880,000 annual rate.

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.

Permit data 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%.

The drop in confidence and the pace of housing construction is a result of several forces converging at once. The unusual weather across much of the United States reduced consumers’ shopping and buying. Shortages of labor and lots have also begun to have a real effect on builders’ ability to build and sell homes. As shortages become more severe, builders are faced with the possibilities that they will not be able to build up their exceptionally low inventories in anticipation of the spring selling season.

Recent NAHB analysis has highlighted labor issues related to the residential construction sector. According to BLS data, 64% of occupations in home building and remodeling are in construction roles, with the rest of employees in business and administration jobs. The data also indicate that most occupations in residential construction pay more than the U.S. median annual wage.

However, the count of open, unfilled construction sector (residential and non-residential) jobs increased 51% over the course of 2013, reaching 143,000 openings in December, BLS data showed. These numbers confirm numerous survey findings indicating that accessing skilled labor remains a key challenge for home builders.

In economic news, the January employment report was disappointing, albeit due to a mix of extenuating circumstances. Payroll employment expanded by 113,000 in January, following an upwardly revised 75,000 increase in December. The average monthly gain was 205,000 over the prior 12 months, marking the weakest two-month period since the 2012 spring slowdown.

According to the household survey, the unemployment rate dipped to 6.6% from 6.7% in December and 7.0% in November. The January decline was based on a 616,000 increase in the number of employed persons that outpaced an increase in the labor force of 499,000. Both developments, an expanding labor force and an even greater expansion in employed persons, are positives.

Access to credit is another limiting factor, both for home buyers and home builders. Recent Federal Reserve data from the Senior Loan Officer Survey on Bank Lending Practices indicates that lending standards for primary residential mortgages tightened for the final quarter of 2013. However, on a net basis, loan officers reported that auto lending, credit card lending and other consumer loan products eased.

These results match other Federal Reserve data indicating an ongoing expansion in the outstanding loan stock for credit cards, student loans and auto loans. Such growth in credit is worth watching for possible housing demand effects among certain demographic groups during the spring home selling season.

Overall, the mixed data results at the start of 2014 for housing reinforce the important role that residential real estate and home building have for the economy at large. As of the final quarter of 2013, housing’s share of GDP stood at 15.3%. And according to the BLS data, over the last year the home building sector has added 121,000 jobs. Since the point of peak decline of home building employment, when total job losses for the industry stood at 1.466 million, 247,000 positions have been added to the residential construction sector. As of January, over the last six months the industry has added on average more than 10,000 jobs per month.

In analysis news, NAHB collected survey data at the end of 2013 that reveals the share of single-family builders who installed energy-producing equipment, highlighting an important trend in home building. The survey finds that 23% of surveyed builders installed alternative energy-producing equipment in the past year, including solar panels and geothermal heat pumps.

Another trend the NAHB survey revealed is that even for new homes not possessing solar panels and other power production equipment, design choices are being made to enable future installation. Of those 77% of builders who answered “no” to the question of power production property installation, an additional 23% (nearly 18% of the survey total) built infrastructure that would allow the home owner to install the power producing equipment easily in the future (e.g. conduits for wiring the electric system to solar panels).

Lastly, NAHB economists tracked the age of the housing stock by state, highlighting housing markets that may see greater amounts of remodeling and new construction to upgrade and replace less efficient existing homes. The oldest homes are found in the Northeast, with the median age of a home in New York at 57 years and 54 in Massachusetts.  The youngest homes are in the Southeast and the Mountain West.

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2 replies


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