Members of the nation’s home building industry visited Capitol Hill this week, highlighting both the economic value and future potential of the industry for job creation and economic growth and making the case on policy issues that could affect the industry: tax reform, housing finance reform, immigration reform and production credit. Because the home building industry is dominated by small businesses across the nation, the sector’s growth can have widespread beneficial impacts.
Indeed, continuing to support economic growth, construction activity increased for single-family and multifamily development in April. Having grown for 22 of the last 23 months, single-family home construction spending increased 1.4% over March and is up 38.6% from this time last year.
Among factors holding back more robust growth for single-family construction is tight production credit for acquisition, development and construction (AD&C loans). While the market for these loans is improving, data from the FDIC indicate that the stock of loans for AD&C purposes has not risen in tandem with the rise of demand for single-family construction, causing builders to seek alternative forms of development financing.
Recently released first-quarter 2013 Census data reveal market conditions for particular sectors of the industry. Construction of attached single-family housing (townhouses) grew both in terms of market share and year-over-year total units started, marking the fourth consecutive quarter of increases. Townhouse construction starts totaled 15,000 at the beginning of the year, a significant increase compared to 10,000 in the first quarter of 2012. Using a one-year moving average, the market share of townhouses now stands at 12.7% of all single-family starts, up from 10.4% for the first quarter of 2012.
The market share of homes built on an owner’s land, with either the owner or a builder acting as the general contractor, fell at the start of 2013 as the rest of the single-family market expanded. As measured on a one-year moving average, the market share of owner- and contractor-built single-family homes has fallen to 22.5%, down from a cycle high of 31.5% reached during the second quarter of 2009.
Single-family starts built-for-rent were up on a year-over-year basis, with the market share rising to a new high: 5.8% as measured as a one-year moving average compared to the historical average of 2.77%. Despite the elevated market share, the number of single-family starts built for rental purposes remains fairly low – only 33,000 homes started during the last four quarters, but this total has been increasing with the overall growth for housing starts.
Multifamily construction spending registered a 3.4% gain in April and has increased 48.6% measured year-over-year. This small monthly rise is consistent with the NAHB forecast, which calls for continued growth for 2013 but not at the pace witnessed in 2012. For example, the NAHB Multifamily Vacancy Index, which measures that industry’s perception of vacancies, rose seven points to 38 in the first quarter. Lower numbers indicate fewer vacancies.
The NAHB Multifamily Production Index inched down two points to an index level of 52 for the first quarter of 2013. Nonetheless, this marks the fifth straight quarter with a reading over 50. The index is scaled so that any number over 50 indicates that more respondents report conditions are improving than report conditions are getting worse.
Total private residential construction (single-family, multifamily and improvements) spending decreased a negligible 0.1% on a month-over-month basis during April due to a further decrease in home improvement spending. The pace of remodeling-related expenditures has declined significantly over the course of 2013. Improvement spending was down 3.3% in April and is down 7% from April 2012.
Rising existing home sales point to increases in remodeling later in the year. This dip at the start of the year comes as recent survey data point to labor shortages in the home-improvement industry that mirror the issues single-family builders have reported.
Home prices continue to rise per March data. According to the the Federal Housing Finance Agency, they increased 1.3% on a month-over-month seasonally adjusted basis and 1.9% on quarter-over-quarter basis. This is the 14th consecutive monthly rise and the seventh consecutive quarterly increase. Over the past year, house prices are up 6.7%.
Similarly, the S&P/Case-Shiller House Price Index grew by 10.2% on a year-over-year, not seasonally adjusted basis in March. Following 19 consecutive months of year-over-year declines, house prices have now registered 10 consecutive year-over-year increases. House price growth in Phoenix had the largest annual increase at 22.5%, followed by San Francisco with 22.2% and Las Vegas with 20.6%.
Rising home prices may actually be helping to support the sales volume of existing home sales, as home owners test the market by placing their homes in the for-sale inventory. While not surging, the National Association of Realtors pending home sales index advanced 0.3% in April and stands 10.3% higher than in April of 2012. The continuing advance in contracts signed in April suggests sales in May will continue to climb.
Underlying these housing developments is improving consumer confidence. According to Thomson Reuters and the University of Michigan, the Consumer Sentiment Index increased by 10.6% on a monthly, seasonally adjusted basis to 84.5. Similarly, the Conference Board reported that its Consumer Confidence Index rose by 10.4% on a monthly seasonally adjusted basis in May to 76.2. These improvements come after soft reading of consumer confidence at the start of the year.
Finally, NAHB economists recently examined new student loan debt data that maps burdens and delinquencies by state. The data, from the New York Federal Reserve, illustrate higher-than-average student debt burdens typically occur in coastal states, where incomes are higher. Perhaps counter-intuitively, with the exception of Florida, Mississippi and Louisiana, states with higher-than-average student debt tend to have an average or below average delinquency rates (90 or more days late). NAHB will continue to track this issue, with an eye on impacts for housing.
Courtesy of David Crowe, NAHB Chief Economist