Home builders ratcheted up construction in April to a level not seen since November 2007. Total starts increased 20.2% from March to a seasonally-adjusted annual rate of 1.135 million. The increase was broad based, with a 16.7% jump in single-family starts to an annual pace of 733,000, the highest since January 2008, and a multifamily increase of 27.2% to an annual rate of 402,000.
Some of the higher numbers were due to particularly cold and snow-laden weather in February and March. But the increases, particularly in the single-family market, are also indicative of continued market healing. Home buyers have been reluctant to buy until there is a clear sign that the economy, and more particularly their own future, is more positive. As employment grows, some wages increase, and home equity improves, households are emerging in greater numbers to shop for a new home.
As the single-family market expands in the months ahead, the median size of newly built single-family homes is expected to recede. However, during the first quarter of 2015, typical new home size hit a record high of 2,521 square feet. Median new home size fell over the course of 2014, but rebounded at the start of 2015 with a decline in home construction volume.
Compared to the start of 2014, custom home building posted a slight decline at the start of the year. Custom starts (homes built on an owner’s lot) fell from 27,000 quarterly starts for the first three months of 2014 to 26,000 for the first quarter of 2015. As measured on a one-year moving average, the market share of custom home building in terms of total single-family starts is now 24.3%, down from a cycle high of 31.5% set during the second quarter of 2009.
The NAHB/Wells Fargo Housing Market Index (HMI) reveals that builders remain positive about market conditions, albeit cautious, as the HMI fell two points to 54 in May. Builders continue to express concern that consumers remain tentative about present and future economic conditions. Consumers demand prices below building costs and are concerned about selling their existing home. First-time buyers still constitute about half their normal share of new home purchases.
May is National Remodeling Month, and NAHB has published several analyses of the home improvement sector. Examples of this research include a listing of the most common green and energy-efficient products and practices used by remodelers and the most cited reasons for remodeling by homeowners. Residential remodelers make up 22% of NAHB’s membership.
Home builders and remodelers have cited access to labor as a significant market challenge for 2015. Recent data from the BLS JOLTS survey note that the number of open construction jobs in the overall construction sector stood at 147,000 in March, with an open rate (on a three-month moving average) of 2.3%. The open rate has been trending higher since 2012.
However, for the total labor market, recent gains are positive news for both rental and owner-occupied housing demand. Job growth bounced back in April, with the BLS reporting that payroll employment expanded by 223,000 after only an 85,000 gain in March. The bounce back in payroll growth is a reassuring signal that the March decline was an aberration.