December 2012 U.S. Construction

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Overall construction spending in the United States increased by 0.9 percent during December, to a seasonally adjusted and annualized rate (SAAR) of $885.0 billion. Gains in private construction more than offset the decline in the public category.

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Total housing starts rose in December, jumping to 954,000 units SAAR (+103,000 units or 12.1 percent relative to November). The increase was fairly evenly split in absolute terms between single- (+46,000 or 8.1 percent) and multi-family starts (+57,000 units or 20.3 percent), although the percentage changes were dramatically different.

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December’s “raw” total and single-family starts demonstrate that the headline numbers were essentially products of seasonal adjustment. Total unadjusted starts were at their lowest level since March 2012 (or February 2012 for single-family starts), whereas multi-family remained just off October’s peak and higher than any other (pre-2012) month since September 2008. Nonetheless, it is worth noting that December’s total starts were 44 percent higher than a year earlier.

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Sales of new single-family homes slipped (-29,000 units or 7.3 percent) to 369,000 (SAAR). The median price of new homes sold also rose by 1.3 percent, to $248,900. Although the change in single-unit starts (+46,000) exceeded that of sales (-29,000), the three-month average starts-to-sales ratio remained essentially unchanged at 1.5 in December.

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Single-unit completions advanced by 3.7 percent, while the inventory of new single-family homes nudged higher on both absolute (to 151,000 units) and months-of-sales (to 4.9 months) bases.

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Existing home sales retreated to 4.94 million units (-50,000 units or 1.0 percent, SAAR) in December. The share of total sales comprised of new homes ticked down to 7.0 percent. The median price of previously owned homes sold in December rose by $1,400 (0.8 percent), to $180,800.

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Housing affordability retreated slightly as the median price of existing homes for sale rose by $3,600 (+2.0 percent) in November. At the same time, however, Standard & Poor’s reported that the 10- and 20-City Composites in the S&P/Case-Shiller Home Price indices posted monthly declines of 0.2 and 0.1 percent, respectively, in November. Nonetheless, the Composites were, respectively, 4.5 and 5.5 percent higher relative to a year earlier.

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"The November monthly figures were stronger than October, with 10 cities seeing rising prices versus seven the month before,” said David Blitzer, chair of the Index Committee at S&P Dow Jones Indices. “Phoenix and San Francisco were both up 1.4% in November followed by Minneapolis up 1.0%. On the down side, Chicago was again amongst the weakest with a drop of 1.3% for November.

"Winter is usually a weak period for housing which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer. The better annual price changes also point to seasonal weakness rather than a reversal in the housing market. Further evidence that the weakness is seasonal is seen in the seasonally adjusted figures: only New York saw prices fall on a seasonally adjusted basis while Cleveland was flat.

Regional patterns are shifting as well. The Southwest -- Las Vegas and Phoenix -- are staging a strong comeback with the Southeast -- Miami and Tampa close behind. The Sunbelt, which bore the brunt of the housing collapse, is back in a leadership position. California is also doing well while the Northeast and industrial Midwest is lagging somewhat.

"Housing is clearly recovering. Prices are rising as are both new and existing home sales. Existing home sales in November were 5.0 million, highest since November 2009. New-home sales at 398,000 were the highest since June 2010. These figures confirm that housing is contributing to economic growth.

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With builders’ confidence in the residential market steady to gaining, the number of permits applied for in December nudged higher on a SAAR basis. Total permits rose to 903,000 units (+3,000 units or 0.3 percent) on the (albeit meager) strength of single-family units (+10,000 units or 1.8 percent, to 578,000 units); multi-family units fell, however, to 325,000 units (-7,000 units or 2.1 percent). The growth in total permits was a function of seasonal adjustment, since both the total (-2,300 units) and single-family (-3,700 units) estimates declined on a not-seasonally adjusted basis. Only the multi-family segment saw a modest uptick (+1,400 units). Still, total permits were 24 percent higher in December than a year earlier.

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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.