Tag Archive for 'single family'

Wells Fargo Reports: Construction Spending Posts Another Gain in July

Wells_Fargo_Securities_logoConstruction spending rose 0.6 percent in July, which shows consistent improvement. While private residential and nonresidential spending increased on the month, public outlays were down 0.3 percent. Third Quarter Off to a Good Start 

Construction outlays rose 0.6 percent in July to a $900.8 billion annualized pace. Previous months’ data were also solidly upwardly revised. Further confirming upward momentum in the housing market, private residential spending was up 0.6 percent and has posted positive gains since October 2012. Digging into the details of private residential, gains were broad-based with single-family, multifamily and home improvement all increasing on10-Year Treasury Yield the month. Another encouraging component of the report was the gain in private nonresidential, which rebounded from a decline in June. Private nonresidential rose 1.3 percent in July. However, public spending remained weak due to a 0.4 percent decline in state and local outlays. Federal spending rose 1.1 percent in July.

Single-Family Outlays Remain Solid

Gains in private residential spending continue to reaffirm strength in the housing market. Builder sentiment remains solid and has shown consistent increases over the past four months. The level is now the highest since late 2005, with more builders seeing conditions as “good” than “poor”. That said, other monthly housing market indicators appear to be at odds with construction spending and sentiment. Single-family housing starts and permits both declined in July, and new home sales plunged on the month. We suspect that recent weakness in 10-Year Treasury Yieldstarts and new home sales activity is only temporary and not the beginning of a trend. Indeed, while some of the slowdown on the month can be blamed by the rapid increase in mortgage rates, we suspect that extremely damp weather in the South attributed to some of the weakness in new home sales activity. With the housing recovery continuing to be driven by fundamentals, we expect further gains in single-family outlays in the coming months.

Multifamily spending has also seen a string of positive gains. The apartment vacancy rate is now at its lowest level in more than a decade at 4.3 percent, and demand remains fairly robust across the country. Deliveries are expected to pick up in the coming quarters and activity should remain solid.

Nonresidential Construction Outlays Improve10-Year Treasury Yield

Private nonresidential outlays have been somewhat of a moving target in recent quarters with revisions quite sizeable. At last, July’s revision to previous months’ data suggest structures will contribute a little more to real GDP growth in the second quarter, all things equal. The July report also suggests that the third quarter is off to a good start. Lodging, commercial and power were some of the largest contributors to the headline. Looking ahead, architectural billings, which typically lead construction spending by about a year, posted its third monthly increase in July.

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Reports:Housing starts fell unexpectedly in June to an 836,000-unit pace

 

Wells_Fargo_Securities_logoBy Mark Vitner, Senior Economist and Anika R. Kahn, Senior Economist

We suspect that rain was a key factor in recent weakness, which means that starts will be more impacted than permits. Indeed, single-family permits increased 0.6 percent, which is the third straight monthly gain. Another important point to make is that the level of permits is running ahead of starts, which suggests a ramp-up in activity is in the cards. Moreover, single-family units under construction show a more steady progression and have increased since the beginning of the year. Single-family units under construction are up 19.8 percent over the past year and increased 1.6 percent in June. Multifamily units under construction are up 38.2 percent on a year-ago basis, which also speak to continued strength in this sector.Housing starts fell 9.9 percent in June, with the decline concentrated in the multifamily component. On a regional basis, single-family starts fell in the South, where rain was likely a factor.

Housing starts fell unexpectedly in June to an 836,000-unit pace. While weakness was broad-based, much of the decline was in the volatile multifamily component, which fell 26.2 percent. Despite the monthly weakness, multifamily construction continues to be a boon for the economy, as renters shut out of the housing market due to tight lending standards continue to boost demand. In fact, multifamily starts are up 7.9 percent over the past year. Gains in apartment demand continue to be driven by the echo boomer generation and are expected to remain steady as many face extraordinary student loan debt. Moreover, the decline in multifamily appears to be a payback for the 28.2 percent jump in May. While the decline in multifamily in June is likely due to statistical noise, attention will be focused on the drop in single-family, which will raise questions whether the recovery remains sustainable.

Single-Family Decline is Much Ado About Nothing

Single-family starts fell 0.8 percent on the month, which is the third decline in four months. The decline seems to be at odds with recently reported builder sentiment. According to the Wells Fargo/ NAHB Builders’ Survey, builder confidence jumped 6 points in July, which is the third consecutive monthly increase. The increase brought the index to its highest level since January 2006. Builders are optimistic about present and future sales and buyer traffic continues to pick up. So, what is the disconnect in monthly data for sentiment versus starts?

Housing Outlook

We expect housing starts to increase to a sustainable pace of 990,000-units in 2013, with much of the gain in single-family. With single-family gaining solid footing, multifamily will begin to stabilize. We believe the trend in multifamily will continue, but starts should peak in the coming years. That said, real residential construction spending will continue to add to real GDP growth.10-Year Treasury Yield10-Year Treasury Yield10-Year Treasury Yield

Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

Wells Fargo Special Report: Housing Data Wrap-Up: April 2012

Home Sales Have A Little More Spring In Their Step

Early reports show that the critical spring home buying season has gotten off to its best start in five years. Sales of new single-family homes totaled 83,000 units during the first quarter, up 16 percent from a year ago, while sales of existing single-family homes rose 7.2 percent, marking the best combined pace for first quarter home sales since 2007. The rise in existing home sales has generated a little excitement, as news is spreading that homes sold outside the foreclosure process are often receiving multiple bids and selling above the asking price.

The sudden prevalence of multiple bids around the country appears to be the result of unseasonably mild winter weather, which brought buyers back into the market to a much greater degree than sellers. The first quarter is typically the slowest quarter of the year, with March being the only busy month. Inventories of existing homes have fallen to just a 6.3-months’ supply, and the inventory of unsold vacant homes has fallen by 353,000 units over the past year. Inventories of new homes continue to decline and are now at a paltry 144,000 units nationwide. Only about one-third of those homes are actually completed. With inventories dwindling, home prices have improved a bit. The Case-Shiller 20-City Home Price Index rose 0.15 percent in February, and the year-over-year decline has moderated to just 3.5 percent. CoreLogic’s price index shows prices declining 2.0 percent over the past year, with prices excluding distressed properties down just 0.8 percent.

The better news on sales and prices, along with near record high affordability and near record low mortgage rates, has encouraged builders to move forward with a few more projects. Starts of new single-family homes rose 16.7 percent during the first quarter, for a total of 104,600 units.

There is even more excitement in the apartment market. Starts of multifamily homes totaled 45,000 units during the first quarter, up 25.3 percent from one year ago, marking the strongest pace for multifamily construction in four years. An improving rental market is driving construction. The latest data from Reis show the national apartment vacancy rates falling 1.3 percentage points over the past year to 4.9 percent and effective rents rising 2.8 percent. Demand for rental units is exceptionally strong. The Census Bureau’s latest housing vacancy rate data show a net increase of 1.5 million occupied rental units over the past year and a 491,000 drop in the number of owner-occupied dwellings. Renters now account for 34.6 percent of the occupied housing stock, the highest proportion in 16 years.

Plenty of Challenges Still Await

To be certain, plenty of problems remain. One reason why existing inventories are so low is because many homeowners are unwilling or unable to put their homes on the market at today’s low prices. The pickup in demand that we have seen recently and the apparent stabilization in home prices is welcome, but is no reason to get carried away. We are not on the cusp of another major boom. Some of the strength in the first quarter was likely pulled forward by unseasonably mild weather in the normally slow months of January and February. Likewise, some of the apparent stability in home prices appears to be due to a slowdown in foreclosure sales and a slight pickup in short sales, which tend to sell at a smaller discount than foreclosures. Foreclosure starts picked up sharply since a settlement was reached regarding foreclosure practices at several major mortgage servicers, and we should see more foreclosure sales later this year.

Even with these caveats, there is no denying that there is real improvement taking place. New and existing home sales have picked up across the country. Pending home sales rose 4.1 percent in March, and February’s previously reported 0.5 percent drop was revised up to a 0.4 percent increase. Consumer confidence surveys and surveys of renters not renewing their leases also point to stronger home sales in coming months. We have slightly raised our forecast for new home sales and new home construction based on the solid gains in sales during the first quarter.

Builders are moving cautiously and are still tending to focus on projects in which lots can be purchased inexpensively, effectively competing against foreclosures and lower-priced existing homes. For the most part, builders are concentrating on smaller homes in submarkets near key employment centers. They are largely avoiding the outer suburbs, in which building was strongest near the end of the boom. Gains are strongest in markets benefitting from the oil and gas boom, namely Houston, where single-family housing permits were up 23.1 percent from the first quarter of last year. Single-family permits have jumped 51.5 percent in Denver over the past year to 1,043 units and are up 24.6 percent in Oklahoma City and 16.1 percent in Dallas.

Activity is also picking up in some of the more overbuilt markets. Phoenix has seen single-family permits jump 54.4 percent over the past year to 2,505 units in the first quarter, and single-family permits are up 31.7 percent in Atlanta and 64.5 percent in Miami-Fort Lauderdale-Pompano Beach. Single family permits are also up close to 50 percent in Orlando over the past year and are up 70 percent in Charlotte to 1,495 units in the first quarter. All of these markets have seen land prices drop significantly. Apartment construction is also up sharply across the country, particularly in rapidly growing markets such as Austin, where multifamily permits are up more than 500 percent over the past year to 3,139 units in the first quarter.

This report is available on wellsfargo.com/economics and on Bloomberg WFEC