June 2011 U.S. Construction

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Overall construction spending in the United States increased by 0.2 percent during June, to a seasonally adjusted and annualized rate (SAAR) of $772.3 billion. Private non-residential construction was the only category to post an increase, gaining 1.8 percent; by contrast, private residential construction fell 0.3 percent.
 

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Although the value of residential construction put in place fell, total housing starts rose by 14.6 percent -- to 629,000 units (SAAR). Even with that large a jump, however, total starts remained 72 percent below the January 2006 peak of nearly 2.3 million units.
 

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The rise in starts was almost equally balanced (on an absolute basis, at least) between the single- and multi-family components (respectively, 39,000 and 41,000 units).
 

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New-home sales retreated again in June, falling by 1.0 percent to 312,000 (SAAR). The median price of new homes sold rose 5.8 percent to $235,200. The starts-to-sales ratio appears to be stabilizing “south” of 1.4, well within the historical range.
 

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Although the slowdown in sales exceeded that of completions, the inventory of new single-family homes shrank in both months-of-inventory and absolute terms. Inventory stood at 164,000 units and 6.3 months (down from 6.4 months). Once again, the number of homes for sale was the lowest since such records began in January 1963.

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Existing home sales fared worse than their new-home counterparts in May, falling by 40,000 units (SAAR), or 0.8 percent. The share of total sales comprised of new homes remained stable at 6.1 percent.
 

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With the median existing home price rising by $14,800 (8.7 percent), to $184,600 in June, housing affordability retreated noticeably once again. The seasonally adjusted 20-city S&P/Case-Shiller home price index for May remained unchanged while the 10-city index rose by 0.1 percent.

“We [saw] some seasonal improvements with May’s data,” said David Blitzer, chair of the Index Committee at S&P Indices. “This is a seasonal period of stronger demand for houses, so monthly price increases are to be expected and were seen in [the seasonally unadjusted data for]16 of the 20 cities. The exceptions where prices fell were Detroit, Las Vegas and Tampa. However, 19 of 20 cities saw prices drop over the last 12 months. The concern is that much of the monthly gains are only seasonal.

“May’s report showed unusually large revisions across some of the metropolitan statistical areas (MSAs). In particular, Detroit, New York, Tampa and Washington DC all saw above normal revisions. Our sales pairs data indicate that these markets reported a lot more sales from prior months, which caused the revisions. The lag in reporting home sales in these markets has increased over the past few months. Also, when sales volumes are relatively low, as is the case right now, revisions are more noticeable.”
 

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“Other recent housing statistics show that single-family housing starts were up moderately in June, and are at about the same pace as a year ago,” Blitzer continued. “Existing-home sales were flat in June, reportedly because of contract cancellations and tight credit. The S&P/Experian Consumer Credit Default indices showed a continuing decline in mortgage default rates since last winter. Other reports confirm that banks have tightened lending standards in the past year, making it harder to qualify for a mortgage despite very low interest rates. Combined, these data all support a continuation of the ‘bounce-along-the-bottom’ scenario we have witnessed in the housing market over the past two years…. We have now seen two consecutive months of generally improving prices; however, we might have a long way to go before we see a real recovery. Sustained increases in home prices over several months and better annual results need to be seen before we can confirm real estate market recovery.”
 

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