February 2013 U.S. Construction

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Overall construction spending in the United States increased by 1.2 percent during February, to a seasonally adjusted and annualized rate (SAAR) of $885.1 billion. Private residential spending exhibited the largest gain (2.2 percent), although the other categories “came along for the ride.”

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Total housing starts were nearly unchanged in February, rising to 917,000 units SAAR (+7,000 units or 0.8 percent relative to January). The absolute increase was about evenly split between the single-family (+3,000 units or 0.5 percent) and multi-family sectors (+4,000 units or 1.4 percent).

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February’s “raw” starts aligned with their seasonally adjusted counterparts. Total unadjusted starts rose off their lowest level since March 2012 in February, thanks primarily to a 2,200 unit (5.6 percent) increase in the single-family category. Starts were up 25.6 percent over year-earlier levels.

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Sales of new single-family homes dropped by 20,000 units (-4.6 percent) to 411,000 (SAAR). The median price of new homes sold advanced, however, by 3.0 percent, to $246,800. Although the change in single-unit starts (+3,000) exceeded that of sales (-20,000), the three-month average starts-to-sales ratio fell back to 1.47 in February.

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Single-unit completions advanced by 3.6 percent, while the inventory of new single-family homes ticked higher in both months-of-sales (by 0.2 month, to 4.4 months) and absolute (+2,000 units) terms.

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Existing home sales advanced to 4.98 million units (+40,000 units or 0.8 percent, SAAR) in February. The share of total sales comprised of new homes fell back to 7.6 percent. The median price of previously owned homes sold in February also rose by $3,000 (1.8 percent), to $173,600.

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Housing affordability jumped back to a near-record high as the median price of existing homes for sale dropped by $6,200 (-3.4 percent) in January. Simultaneously, however, Standard & Poor’s reported that the 10- and 20-City Composites in the S&P/Case-Shiller Home Price indices posted respective monthly gains of 0.2 and 0.1 percent in January (7.3 and 8.1 percent, respectively, relative to a year earlier).

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“The two headline composites posted their highest year-over-year increases since summer 2006,” said David Blitzer, chair of the Index Committee at S&P Dow Jones Indices. “This marks the highest increase since the housing bubble burst.

“After more than two years of consecutive year-over-year declines, New York reversed trend and posted a positive return in January. The Southwest (Phoenix and Las Vegas) plus San Francisco posted the highest annual increases; they were also among the hardest hit by the housing bust. Atlanta and Dallas recorded their highest year-over-year gains.

“Economic data continues to support the housing recovery. Single-family home building permits and housing starts posted double-digit year-over-year increases in February 2013. Despite a slight uptick in foreclosure filings, numbers are still down 25 percent year-over-year. Steady employment and low borrowing rates pushed inventories down to their lowest post-recession levels.”

Some are arguing that the Federal Reserve’s monetary policies are leading to higher housing prices (especially single-family units). As reported by ZeroHedge, “Blackstone Group LP, the world’s largest private equity firm, plowed over $3.5 billion into the housing market, according to Bloomberg, to gobble up 20,000 vacant and foreclosed single-family homes. It just fattened up a credit line to $2.1 billion to do more of the same. Colony Capital LLC, which already owns 7,000 [units], is putting $2.2 billion to work.

“‘We recognized that prices were moving faster than people expected,’ explained Devin Peterson, a Blackstone real estate associate, to Bloomberg. Despite that, they’re still ‘finding opportunities to buy.’ They might not be able to rent them out very quickly, but they’d rather not be ‘missing out on a few points in home price appreciation.’ The race to buy is on. The next housing bubble is inflating,” Zerohedge concluded.

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Although builders’ confidence in the residential market held steady or softened during the past couple of months, the number of permits applied for nudged higher on a SAAR basis in February. Total permits rose to 946,000 units (+42,000 units or 4.6 percent), mainly on the strength of multi-family units (+26,000 units or 8.1 percent, to 346,000 units); single-family units also rose by a more meager 16,000 units (+2.7 percent), to 600,000 units. Total permits were 28.5 percent higher in February 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.