October 2012 U.S. Construction

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Overall construction spending in the United States increased by 1.4 percent during October, to a seasonally adjusted and annualized rate (SAAR) of $872.1 billion. Gains occurred “across the board” although private residential construction exhibited the largest absolute and percentage increases.
 

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Total housing starts also tracked higher in October, to 894,000 units SAAR (+31,000 units or 3.6 percent relative to September). The increase was restricted to multi-family starts (+32,000 or 11.9 percent), however, as single-family starts decreased to 594,000 units (-1,000 units or 0.2 percent).
 

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New-home sales edged lower, by 0.3 percent, to 369,000 (SAAR). The median price of new homes sold also fell by 4.2 percent, to $237,700. Although the change in single-unit starts equaled that of sales (both -1,000), the three-month average starts-to-sales ratio jumped above 1.6 in October -- the highest value since May 1996.
 

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Single-unit completions rose by 3.4 percent; the inventory of new single-family homes also bumped higher, to 147,000 units and 4.8 months.
 

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Existing home sales diverged with new home sales by advancing to 4.79 million units (+100,000 units or 2.1 percent, SAAR) in October. The share of total sales comprised of new homes dipped to 7.1 percent, from 7.3 percent in September. The median price of previously owned homes sold in October edged up by $300 (about 0.1 percent), to $178,600.
 

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In September, housing affordability rose slightly as a result of a minor dip in the median price of existing homes. Simultaneously, the not seasonally adjusted 10- and 20-city S&P/Case-Shiller home price indices showed average home prices increased by 0.3 percent for both the 10- and 20-City Composites relative to August 2012. Seventeen of the 20 metro statistical areas and both composites posted better annual returns in September versus August 2012; Detroit and Washington D.C. recorded a slight deceleration in their annual rates, and New York saw no change.

“Home prices rose in the third quarter, marking the sixth consecutive month of increasing prices,” said David Blitzer, chair of the Index Committee at S&P Indices. “In September’s report all three headline composites and 17 of the 20 cities gained over their levels of a year ago. Month-over-month, 13 cities and both Composites posted positive monthly gains.

“The National Composite increased by 3.6 percent from the same quarter in 2011 and by 2.2 percent from the second quarter of 2012. The 10- and 20-City Composites have posted positive annual returns for four consecutive months with a +2.1 percent and +3.0 percent annual change in September, respectively. Month-over-month, both Composites have recorded increases for six consecutive months, with the most recent monthly gain being +0.3 percent for each Composite.

“We are entering the seasonally weak part of the year. The headline figures, which are not seasonally adjusted, showed five cities with lower prices in September versus only one in August; in the seasonally adjusted data the pattern was reversed: one city fell in September versus two in August. Despite the seasons, housing continues to improve.

“Phoenix continues to lead the recovery with a +20.4 percent annual growth rate. Atlanta has finally reversed 26 months of annual declines with a +0.1 percent annual rate as observed in September’s housing data. At the other end of the spectrum, Chicago and New York were the only two cities to post annual declines of 1.5 percent and 2.3 percent respectively and were also down 0.6 percent and 0.1 percent month-over-month.
 

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Although builders are gradually gaining more confidence in the residential market, fewer permits were applied for in October. Total permits fell to 866,000 units (-24,000 units or 2.7 percent); single family units increased to 562,000 units (+12,000 units or 2.2 percent) while multi-family units slowed to 304,000 units (-36,000 units or 18.6 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.