September 2012 U.S. Construction

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Overall construction spending in the United States increased by 0.6 percent during September, to a seasonally adjusted and annualized rate (SAAR) of $851.6 billion. The gain in private residential spending more than offset the decline in the other categories.
 

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Total housing starts leapt by 15.0 percent in September, to 872,000 units (SAAR). Single-family starts increased to 603,000 units (+60,000 units or 11.0 percent) relative to August; at the same time, multi-family starts rose to 269,000 units (+54,000 units or 25.1 percent).
 

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New-home sales advanced by 5.7 percent, to 389,000 (SAAR). The median price of new homes sold fell by 3.2 percent, to $242,400. Because the change in single-unit starts (+60,000 units) exceeded that of sales (+21,000), the three-month average starts-to-sales ratio jumped to 1.55 in September.

Interestingly, the jump in sales was entirely a result of seasonal adjustments; on a not seasonally adjusted basis, sales during September were on par with August, and at their lowest level since February.
 

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Single-unit completions rose by 8.5 percent; the inventory of new single-family homes remained relatively stable at 145,000 units and 4.5 months.
 

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Existing home sales diverged with new home sales by retreating to 4.75 million units (-80,000 units or 1.7 percent, SAAR) in September. The share of total sales comprised of new homes rose to 7.6 percent, from 7.1 percent in August.
 

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The median price of previously owned homes sold in August edged up by $100 (less than 0.1 percent), to $188,700, causing housing affordability to move sideways.

Simultaneously, the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices showed average home prices increased by 0.9 percent for both the 10- and 20-City Composites in August versus July 2012. Nineteen of the 20 cities and both Composites posted positive monthly gains in August; Seattle was the only exception where prices declined 0.1 percent over the month.

“Home prices continued climbing across the country in August,” said David Blitzer, chair of the Index Committee at S&P Indices. “Nineteen of the 20 cities and both Composites showed monthly gains in August. Seventeen cities and both Composites posted positive annual returns in August 2012. In 18 cities and both Composites annual rates improved in August versus July. Dallas’ rate remained unchanged at +3.6 percent and Chicago worsened slightly from a -1.0 percent annual rate in July to a -1.6 percent annual rate in August.

“Phoenix continues to lead the home price recovery. It recorded its fourth consecutive month of double-digit positive annual returns with a +18.8 percent rate for August. Atlanta posted a -6.1 percent annual rate, however this is significantly better than the nine consecutive months of double-digit declines it posted from October 2011 through June 2012. Las Vegas’ annual rate finally moved to positive territory with a +0.9 percent annual rate of change in August 2012, its first since January 2007.

“The sustained good news in home prices over the past five months makes us optimistic for continued recovery in the housing market.

“News on home prices confirms other good news about housing. Single family housing starts are 43 percent ahead of last year’s pace, existing and new home sales are also up, the inventory of homes for sale continues to drop and consumer mortgage default rates are reaching new lows. Further consumer confidence continues to rise. Even as we end the seasonally strong home buying period, the statistics are positive. For the fifth time in a row, both Composites had monthly gains. Home prices in Seattle fell modestly in August, but other than that the 20 cities have also seen home prices generally improve since April.”
 

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Builders are gradually gaining more confidence in the residential market and hence applying for more permits. Total permits rose to 894,000 units (+90,000 units or 11.6 percent) in September; single family units increased to 545,000 units (+34,000 units or 6.7 percent) while multi-family units jumped to 349,000 units (+59,000 units or 20.3 percent).
 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.