Wells Fargo Reports: Builder Confidence Slips in January

On the heels of a 6-point gain, the NAHB/Wells Fargo Housing Market Index fell 2 points to 67 in January. Confidence declined across components, suggesting a rebalancing following the post-election surge.

Homebuilder Sentiment Dips

After a sizable 6-point jump in December, the NAHB Housing Market Index fell 2 points to 67 in January. All three index components declined on the month. Present sales conditions reported the largest drop, falling 3 points to 72.

Despite the monthly decline, builder confidence remains at a solid level—just 2 points shy of its cycle high. The reading is consistent with modest strengthening in homebuilding.

Confidence Slides in the West

Homebuilder confidence fell in the West, Northeast and the South, while sentiment in the Midwest was unchanged. The West reported the largest drop, falling 11 points. The big drop in the West may be weather-related, given the recent rains and snow.

While challenges for the housing market remain in place, we expect continued gradual improvement in home sales and single- family construction in the year ahead.

Wells Fargo Reports: December Housing Starts Headline Full of Hubris

Housing starts jumped 11.3 percent in December, ending the year at a 1.226 million unit pace. Multifamily starts surged, while single-family posted its second weak monthly reading. Permits fell during the month.

Solid December Report, but Payback Is in the Offing

Thanks to an outsized surge in the volatile multifamily component, housing starts ended 2016 on a solid note, rising to a 1.226 million unit pace in December from an upwardly revised 1.102 million unit rate in November. Although the strong reading is welcome, the level of starts looks to be bit exaggerated, especially as we are in the seasonally slow period of the year and swings in the data due to the seasonal adjustment process and weather distortions play a larger role in the headline reading. The three-month moving average shows starts are up a more moderate 5 percent in December, with single-family activity eking out a 0.6 percent gain and multifamily increasing 16 percent. Permits, which tend to be less volatile, fell 0.2 percent in December but grew 1.9 percent on a year-over-year basis.

With December now in the books, we see that the annual average for permits is running ahead of starts, pointing to a pickup in activity in the coming year. In previous publications, we have written about the shift in construction toward less expensive homes, which is a welcome sign following the dearth of activity in the lower-priced home segment as many investors converted units into rentals. We suspect some of this activity will cool as the recent spike in mortgage rates following the election curtails overall activity. December mortgage purchase applications are already showing some of the strain of higher mortgage rates, declining in December from a two-year high.

The trend in multifamily starts seems to be unrelenting; however, we expect some payback in the coming months. Starts jumped a strong 57.3 percent in December to a 431,000 unit-pace. On the other hand, permits fell 9.0 percent to a 393,000 unit-rate. With lending standards in multifamily tightening and apartment rent growth moderating, we expect the pace of multifamily building to cool in 2017.

Another seemingly hopeful sign is builder sentiment. The NAHB/Wells Fargo Housing Market Index remained at an elevated level in January, suggesting some upside risk to overall starts. Although builder sentiment is typically seen as a forward-looking indicator for starts, the 11-year high in December and still-elevated reading in January seems to be somewhat unbridled and could also reflect some election euphoria. Similar to residential borrowers, developers likely rushed to “lock-in” financing. We see the same pattern in consumer sentiment, which is now at a two-year high. That said, the builder sentiment index declined 2 points to 67 during the month, with all three components including current sales, future sales and prospective buyer traffic retreating.

Looking ahead, the underlying fundamentals and still rising credit availability suggest starts have more room to run. We expect starts to average a 1.17 million unit pace in 2017 and 1.22 million unit rate in 2018.

Volvo CE announces headquarters move from Brussels, Belgium to Gothenburg, Sweden

 

Volvo Construction Equipment (Volvo CE) has today announced that the company’s global headquarters will move from its current location in Brussels, Belgium to Gothenburg, Sweden. The relocation will facilitate closer cooperation with the Group’s other business areas and allow for better usage of the competence and resources of the whole Volvo Group.

“Our Brussels location has served us well since the office opened in the 1980s and this move comes at the right time for Volvo CE as we continue to adapt our company to changing global business dynamics. It allows us to be physically closer to the other Volvo business areas and it will facilitate closer cooperation and sharing of best practices,” states Martin Weissburg, President of Volvo CE and Member of the Executive Board of the Volvo Group. “Sweden is also home to approximately 4,000 Volvo CE employees and where some of our largest manufacturing, commercial and technology sites are located,” adds Martin Weissburg.

The Volvo CE headquarters will be operational in Gothenburg in the third quarter of 2017.

ABC Reports: Overall Construction Input Prices Firm in December as Energy Prices Surge

Construction input prices rebounded in December after experiencing a steep decline in November, according to analysis of U.S. Bureau of Labor Statistics data released today by Associated Builders and Contractors (ABC). Input prices rose 0.4 percent for the month and are up 2.1 percent year-over-year, the largest 12-month increase in 30 months.

Nonresidential input prices collectively experienced a slightly larger increase, due in part to surging iron and steel prices, rising 0.6 percent for the month and 2.2 percent on the year. Though a number of input categories have experienced significant increases in prices in recent months, the overall price gains are largely attributable to energy prices. Crude petroleum prices rose 18.9 percent for the month, natural gas prices rose 23.1 percent and unprocessed energy materials rose 14.6 percent. Concrete products and the category that includes prepared asphalt experienced minimal declines in prices in December.

“While there are a number of factors that have contributed to the recent firming in input prices, recent deals made by OPEC and non-OPEC members to suppress oil production is the most consequential,” said ABC Chief Economist Anirban Basu. “While oil prices remain above where they were before production agreements were reached, the price of oil has generally failed to rise much beyond $50.

“Other factors have also led to a steady rise in materials prices including an improving global economy,” said Basu. “While not accelerating dramatically, global economic growth in 2017 is expected to exceed 2016’s performance, with nations like Brazil and Russia no longer mired in deep recessions. U.S. economic growth is also expected to be stronger in 2017, lifting the overall global economic outlook and supporting more bullish commodity markets.

“It is probably too early for contractors to become excessively preoccupied with rising materials prices,” said Basu. “Despite recent signs of economic improvement, massive levels of debt and commercial vacancy in much of the world will constrain both worldwide economic growth and global construction. Moreover, commodity traders among others are well aware that the planet is physically able to supply plenty of oil, natural gas and many other commodities, particularly if prices rise further. That knowledge in and of itself tends to place a lid on input price increases absent a major geopolitical event.”

December Construction Input Prices

ARTBA Outlines for New Trump Administration Regulatory Reforms to Help Speed Transportation Project Delivery

More than 20 federal regulations and other policy actions are affecting, and in some cases, hindering the ability to complete transportation improvement projects efficiently, safely, in a timely manner and in the best interests of U.S. taxpayers, according to a comprehensive new report from the American Road & Transportation Builders Association (ARTBA).

“Ripe for Reform: Federal Regulatory Issues Impacting Transportation Project Delivery” is aimed at assisting the incoming administration’s previously announced review of federal regulations, and has already been shared with transition officials. The recommendations were developed with input from ARTBA’s public and private sector members, and its state contractor chapter affiliates.

The association is also distributing the report to House and Senate transportation leaders and their staffs, and plans to share it with new federal agency officials following the Jan. 20 inauguration.

Citing President-elect Donald Trump’s oft-stated commitment to investing major dollars to upgrade the nation’s infrastructure, ARTBA notes that “(l)essening the transportation construction industry’s unreasonable regulatory burden will maximize the value of the significant new dollars being invested in transportation improvement projects, unleash innovation in designing and building them, and take full advantage of job-creation possibilities.”

The compilation document addresses existing rules, proposed rules, guidance and executive orders currently in place, a flurry of which have been issued by the Obama administration. These include regulations and policies administered by the: U.S. States Department of Transportation (Disadvantaged Business Enterprise program, project labor agreements, hours of service); Environmental Protection Agency (Waters of the U.S., Clean Air Act standards); Department of Labor (silica exposure and recordkeeping); Department of the Interior (Endangered Species Act); and the White House Council on Environmental Quality (greenhouse gas).

Read the full report.

Established in 1902, ARTBA represents the U.S. transportation construction industry before Congress, the White House, federal agencies, courts, news media and general public.