February 6, 2014
U.S. residential market has sniffles, but nothing nursing won’t cure
U.S. new home starts in December 2013 were just shy of one million units, seasonally adjusted and annualized (SAAR), according to the latest joint press release from the Census Bureau and Department of Housing and Urban Development (HUD).
At 999,000 units, they were -9.8% versus November 2013, but +1.6% when compared with December 2012. Keep in mind, however, that November of last year recorded the highest volume of starts since early in the Great Recession.
U.S. new home starts have broken the one-million-units barrier only twice in the past five-and-a-half years — March and November of last year at 1.005 and 1.107 million units respectively — dating back to June 2008’s 1.046 million units.
For full year 2013, U.S. new home starts on average were 928,000 units (SAAR), an increase of 18.4% over 2012’s 783,000 units.
The relationship between single- and multiple-unit starts in 2013 was almost exactly two-thirds versus one-third.
Multiple-unit starts, with a smaller share of the total, increased 24.2% year-over-year.
The increase in the single-family market was a less aggressive, but still sizable 15.8%.
Among the nation’s four major regions, the largest percentage gain was in the West, +24.2%, followed by the Northeast, +20.2%.
The South, +16.3%, and Midwest, +16.0%, recorded smaller gains that were almost identical with each other.
2013’s monthly averages for the regions were as follows: the South, 465,100 units (SAAR); West, 217,100; Midwest, 148,800; and Northeast, 96,500.
Expressed as shares of the national total, the South was almost precisely half, at 50.1%; the West nearly one-quarter, at 23.4%; the Midwest, 16.0%; and Northeast, 10.4%.
Residential building permits, a leading indicator for groundbreakings, were 968,000 units (SAAR) in the latest month. This was a bit of a comedown, although not sufficiently large to generate alarm, given that permits in the two prior months exceeded one million units.
There were three months in 2013 when permits clawed their way above one million units — April (1.005); October (1.039); and November (1.017).
In a second separate release from the Census Bureau and HUD, new home sales in December were reported to be 414,000 units (SAAR), a decline of 7.0% versus November, but a gain of 4.5% when compared with the last month of 2012.
For 2013 as a whole, the monthly average of single-family new home sales, at 428,000 units, was +16.4% relative to 2012’s 368,000 units.
In circular fashion, improving residential real estate is both an offshoot of a stronger economy and a major source of improving activity levels. It’s the second part of the equation that’s particularly important for a Canadian economy that is trying to tag along with the American.
Plus, there’s the usual pick-up in Canadian export sales of building materials such as lumber.
Better new home demand lifts mortgage activity and generates construction employment.
Improving resale activity lifts employment in several professions (e.g., real estate agents and lawyers) and also provides stimulus to the banking sector.
Job creation and GDP growth help fuel residential real estate activity. The U.S. total employment increase in December 2013 tailed off to only 78,000. In ten of the other 11 months of 2013, the net jobs figure was more than +100,000, with February the highest at +332,000.
At the same time, December’s jobs report included an unemployment rate of 6.7% which achieved a significant milestone, dropping below 7.0% for the first time since November 2008.
The lower jobless figure may have been partly due to a “discouraged worker” effect (i.e., people giving up on a job search). Also, the population is aging and some seniors are dropping out of the workforce.
In any event, December’s 6.7% jobless level was a 1.2 percentage-point improvement on December 2012’s 7.9%.
Weekly U.S. initial jobless claims have settled back into the 320,000 to 330,000 range over the past three weeks. While they’ll need to drop closer to 300,000 to yield a monthly net jobs figure of +200,000, they do suggest a return to +100,000 to +150,000.
The latest Purchasing Managers’ Index (PMI) of the Institute of Supply Management (ISM) was 57.0%, which historically corresponds with “real” (i.e., inflation-adjusted) gross domestic product (GDP) growth of 4.6%, a strong number.
This is another confirmation of underlying strength in the economy.
Over the past five years, American consumers have been pre-occupied with debt relief.
Mortgages have often played a key role, with their reductions either dictated by circumstances (i.e., foreclosures) or realized through refinancing (with principle reductions).
At the same time, the value of the main asset owned by families has been climbing nicely.
The National Association of Realtors (NAR) says the national median (the point at which half are higher and half lower) existing-home selling price for all of 2013 was +11.5% versus 2012.
This was the fastest annual increase since 2005’s +12.4%.
In stand-alone December, the year-over-year increase was a little lower at +9.9%.
In the new homes market, the full-year 2013 median price rose 8.4% and the average, 9.8%.
Strictly in December, the median price of new single-family homes rose 4.6%, while the average climbed 4.1%.
In summary, 2013 was a good year for residential construction activity levels and prices, but there were some sniffles at the end that will clear up with some “nursing”.