Housing starts fell in August, according to the most recent government data, but the NAHB/Wells Fargo Housing Market Index (HMI) rose to a post-recession high. The market data suggest future increases in single-family building as the sector expands to higher levels of activity more consistent with long-run rates of household formation and population growth.
For August, the Census Bureau and HUD reported that the seasonally adjusted annual pace of housing starts was 956,000, 14.4% below the July pace of 1.117 million starts. It is important to note that much of the decline was concentrated in the volatile multifamily sector.
Multifamily starts came in at an annual pace of 313,000, down significantly (32%) from the elevated rate of 458,000 in July. Multifamily starts have ranged between below 300,000 and over 400,000 for the last 18 months. Despite the volatility, the trend in multifamily starts has been solidly upward, averaging a 352,000 pace thus far in 2014.
The pace of single-family starts for the month was effectively flat, falling 2.4%. NAHB expects single-family starts to strengthen through the end of this year and next. Indeed, the HMI, a monthly measure of single-family builder market sentiment, increased four points to 59 in September, the highest reading of the post-recession period. Builder confidence was up in all four regions and has regained the losses suffered at the end of 2013 and the start of 2014.
Completions of single-family and multifamily projects boosted the Census measure of private residential construction spending to an annual pace of $358 billion in July. On a three-month moving average basis, from July 2013 single-family construction spending is up 9.9% and multifamily has increased 38.4%. Home improvement spending continues to show some weakness, down 2.2% year over year, due to earlier weakness in the volume of existing home sales.
Beyond strengthening builder confidence, conditions continue to favor home buying going forward. Surging rental demand has increased rents, with CPI data and NAHB calculations indicating that inflation-adjusted real rents have risen, on average, 1.4% over the last 12 months.
Rising consumer confidence is also apparent in recent data revealing expanding consumer credit and purchases of durable goods such as furniture and other home furnishings. And mortgage interest rates remain low by historic standards. Monetary policy has kept rates low, although recent Fed communications suggest that the federal funds rate is expected to increase in 2015.
Recent labor market conditions presented mixed news for housing. The Bureau of Labor Statistics (BLS) August report noted employment growth of only 142,000, well below analyst expectations. The unemployment rate ticked down to 6.1%, but that decline was driven by fewer people in the labor force rather than more positive conditions for hiring.
For construction, the BLS JOLTS data found that the current count of unfilled construction jobs is among the highest since 2008, with the number of open construction sector jobs for June being revised up from 127,000 (on a seasonally adjusted basis) to 152,000. The June count of unfilled construction jobs was the second highest since May 2008. The July estimate posted a small monthly decline to 140,000. The data point to ongoing challenges in hiring for many builders.
In more positive news, building material prices continue to ease. Inflation in prices received by producers (prior to sales to consumers) was flat in August from July. Softwood lumber prices rose 2.4% in August but are down modestly from an earlier March peak. OSB prices declined 4.9% for the month, continuing a slide that began in 2013. Gypsum prices declined 0.9% in August and are down from a recent February peak.
In analysis news, NAHB economists recently examined Census data to explore the characteristics of typical new subdivisions, in terms of median size, number of housing units, density and other factors. In a separate analysis, research explored the most common exteriors for new homes, with vinyl products leading the market. Finally, NAHB discussed the causes and consequences of the Great Delay - the declining rates of household formation for younger Americans.