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Friday, February 21, 2014

Drop in Builder Confidence and Housing Starts Weather Related

2013 was a good year for home builders. While production remains below normal levels, as determined by population growth and the need to replace older housing, last year’s gains in home construction generated real economic benefits.

Multifamily building led the way, growing 25 percent over 2012 levels and reaching a total of 309,000 units. Single-family has lagged but increased 16 percent in 2013. Total starts reached a level of 931,000 housing units last year, an increase of 19 percent.

The expansion of building has been an engine of job creation. According to data from the Bureau of Labor Statistics, the residential construction sector added 121,000 jobs during 2013 and almost 250,000 over the last two and half years.


With a significant amount of pent-up rental and owner-occupied housing demand, 2014 is poised to build on these economic gains. However, monthly housing data for the start of the year have been disappointing.

The February National Association of Home Builders / Wells Fargo Housing Market Index, or HMI – a measure of single-family builder market confidence – experienced its largest monthly drop in index history, falling 10 points to a level of 46. Any number above 50 indicates that more builders view market conditions as good rather than poor. Prior to the February report, the HMI had been above 50 for eight straight months.

The January Census Bureau report on housing construction reflected this drop in market confidence, as single family starts declined 16 percent from the December 2013 pace. January was the second straight monthly decline for total and single-family starts.

So is it time to call a trend and question the prospects for housing growth in 2014?  No.

First, it is important to note that much of the January decline in housing construction was weather related. For example, single-family starts in the Midwest, which has experienced an unusually cold winter, declined a dramatic 60 percent from December to January. For the Midwest, the January 2014 single-family starts pace was 50 percent lower than the January 2013 rate.


While the weather impact is clear in the data, there are other factors at work that will cause the monthly data to experience stops and starts along the post-recession growth path to a normal housing construction market.

Home builders have reported difficulty in filling available jobs with workers with the right skills. To see this for the construction sector overall, government job data indicate the number of unfilled construction sector positions rose from 95,000 in December of 2012 to 143,000 at the end of 2013. The residential building sector is also experiencing higher building material prices and a shortage of developed lots in some regions. These supply-side bottlenecks will partially hold back the uptick in construction as pent-up housing demand is unlocked.


From an article in US News and World Report

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