January 2011 U.S. Construction

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Overall construction spending in the United States decreased by a seasonally adjusted and annualized rate (SAAR) of 0.7 percent during January, to $791.8 billion. Private non-residential construction took the biggest hit, falling 6.9 percent, while residential construction rose by 5.3 percent.
 

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As was somewhat expected because of the December rise in residential permits, total housing starts rose by 14.6 percent in January. Although that percentage change seems quite sizeable, it nonetheless pulled starts up only to 596,000 units SAAR. Still, that is nearly 100,000 units higher than what we have defined as the “natural” or “background” rate of 500,000 total units.
 

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All of the improvement in starts occurred in the multi-family category; single-family starts declined by 1.0 percent.
 

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Homebuyers must have attempted to beat a self-imposed year-end deadline, because new-home sales slumped by 12.6 percent in January. Although sales dropped, the falloff in starts was sufficient to lower the ratio of starts to sales for a third month.
 

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Because sales fell more dramatically (especially on a percentage basis) than did completions, the inventory of new homes rose in months-of-inventory terms even though the absolute number of available homes declined slightly. Inventory stood at 188,000 units (down from 189,000 in December) and 7.9 months (up from 7 months).
 

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Existing home sales rose for a third month in December. That, in combination with the retreat in new home sales, pared the latter’s proportion of total sales back to 5.0 percent.
 

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A drop of nearly $10,000 in the median existing home price between December and January jacked housing affordability to a new, all-time high. As we have indicated in the past, however, falling home prices are a two-edged sword: While they make housing purchases more affordable, in a perverse way they also discourage those purchases. Why buy a home if there is a high likelihood that continued price erosion will quickly wipe out whatever equity the buyer has in the home?
 

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The seasonally adjusted S&P/Case-Shiller home price indices also retreated in all but a handful of metropolitan statistical areas (MSAs) in December. Most MSAs saw prices erode on a year-over-year basis as well.

“We ended 2010 with a weak report.” said David Blitzer, chair of the Index Committee at Standard & Poor's. “The National Index is down 4.1 percent from 4Q2009 and 18 of 20 cities are down over the last 12 months. Both monthly Composites and the National Index are moving closer to their 2009 troughs. The National Index is within a percentage point of the low it set in 1Q2009. Despite improvements in the overall economy, housing continues to drift lower and weaker. Unlike the 2006 to 2009 period when all cities saw prices move together, we see some differing stories around the country. California is doing better with gains from their low points in Los Angeles, San Diego and San Francisco. At the other end is the Sun Belt – Las Vegas, Miami, Phoenix and Tampa. All four made new lows in December. Also seeing renewed weakness are some cities that were among the last to reach their peaks including Atlanta, Charlotte, Portland OR and Seattle, where news lows were also seen. Dallas, which peaked late, has so far stayed above its low marked in February 2009.”
 

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