January 2017

Market Pulse section compiled by IvyLee Rosario. To comment, email ivylee.rosario@cpe-mhn.com.

Multifamily Starts:

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, starts of buildings with five or more units fell by 7.9 percent over the month of January 2017, to 421,000. Despite the monthly decline, January 2017 marks the sixth month out of the last eight, dating back to June 2016, that starts of five or more units have exceeded 400,000. The two months of sub-400,000 starts were September and November when starts of five or more unit buildings reached 257,000 and 320,000, respectively.

The National Association of Home Builders’ Multifamily Production Index (NAHB MPI) increased two points to 55 in the fourth quarter of 2016. For five straight years, the MPI has been at or above 50, which indicates that more respondents report conditions are improving rather than getting worse. The results of NAHB’s MPI indicates that momentum in the apartment and condominium market continues.

CPI vs. Rent:

The headline consumer price index (CPI) rose by 0.6 percent in January 2017, doubling the 0.3 percent rate of growth recorded in December. The growth in the CPI over the year partly reflected a 4 percent increase in energy prices as gasoline prices rose 7.8 percent. The sharp rise in the gasoline index accounted for nearly half the increase in the overall CPI over the month of January. Meanwhile, food prices rose by 0.1 percent in January, following six consecutive months of stagnancy. Excluding historically volatile food and energy prices, “core” CPI rose by 0.3 percent in January, faster than the 0.2 percent increase in December. A 0.2 percent advance in shelter prices contributed to growth in core-CPI. Shelter prices are the largest consumer expenditure category. However, while the shelter index rose over the month by 0.2 percent, the rate of growth was below its rate in December, 0.3 percent. Rental prices, a component of the shelter index, grew by 0.3 percent in January. Since the increase in rental prices was similar to the rate of growth in overall inflation, as measured by core-CPI, then NAHB’s Real Rent Index was unchanged over the month. However, over the past year, NAHB’s Real Rent Index rose by 1.6 percent.

Existing Condo Sales and Prices:

In January 2017, sales of existing condominiums and cooperatives rose by 8.3 percent. Regionally, the 8.3 increase in condo and co-op sales nationwide reflected gains in the West (14.3%), the Northeast (8.3%) and the South (7.7%). Meanwhile, sales in the Midwest were unchanged over the month. The inventory of existing condos and co-ops fell 8.2 percent in January to 179,000. Since the pace of sales growth, which was positive, exceeded the rate of inventory growth, which was negative, the months’ supply, which represents the number of months it would take to exhaust the existing condo and co-op inventory at the current sales pace, dropped by 15.4 percent in January to 3.3 months. Consistent with sales growth and a shrinking inventory, median prices on condos and co-ops nationwide rose by 6.2 percent to $217,400 in January.

Building Materials:

The price of inputs to construction rose by 3.1 percent on a not seasonally adjusted basis over the 12 months ending in January 2017. This component of the Producer Price Index is composed of the price of inputs to new construction and the price of maintenance and repairs. Over the past year, the price of inputs to new construction increased by 3.1 percent. The price of inputs to new non-residential construction climbed 3 percent while the price of inputs to new residential construction rose by 2.9 percent. The fact that the 12-month increase in new construction, 3.1 percent, exceeds the 12-month increases in both of its subcomponents, may be due to the rounding that occurs at each stage of these calculations.

Meanwhile, the price of maintenance and repairs construction grew by 3.2 percent over the past year. The price of inputs to non-residential maintenance and repairs rose by 3.4 percent while the price of inputs to residential maintenance and repairs declined by increased by 3.0 percent. Meanwhile, the price of oriented strand board (17.8%), cement (3%) and Gypsum (2.7%) all rose over the past 12 months. However, the price of softwood plywood fell 3.8 percent.

Commentary and data were supplied by Michael Neal, a senior economist with the National Association of Home Builders (NAHB).

Michael Neal is a senior economist with the National Association of Home Builders (NAHB). In this capacity, he monitors macroeconomic and financial issues that affect the U.S. and local housing markets. Prior to joining NAHB, he worked at the Joint Economic Committee of the U.S. Congress, the Federal Reserve, the Congressional Budget Office and Goldman, Sachs & Co.