Market Pulse for August 2016

Market Pulse section compiled by Suzann Silverman. To comment, email [email protected].

Multifamily Starts:

Housing starts of buildings with five or more units rose by 1.3 percent over the month of May 2016 to a seasonally adjusted annual rate of 396,000. This increase marks the second consecutive month of growth. Over this two-month period, starts of buildings with five or more units have risen by 12.2 percent. Despite the increase, the pace of starts of buildings with five or more units is similar to its level over the first five months of 2015. Between January and May 2016 starts of buildings with five or more units have averaged 366,000. Over the first five months of 2016, starts of five or more unit buildings averaged 357,000. Meanwhile, NAHB’s Multifamily Vacancy Index (MVI), which is distinct from NAHB’s Multifamily Production Index (MPI) and measures respondent perceptions of vacancies in the multifamily housing market, decreased one point to 39 over the first quarter of 2016. A MVI below 50 indicates that more respondents perceived a reduction in vacancy rates than perceived vacancies were increasing. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011. Historically, the MVI has shown to be a leading indicator of Census multifamily vacancy rates. Despite the small decrease in the overall MVI, the first quarter reading is consistent with the NAHB’s expectation that the multifamily housing market is reaching equilibrium and will remain relatively stable through 2016.

CPI vs. Rent:

Consumer prices (CPI) overall rose by a seasonally adjusted 0.2 percent in May 2016, 0.2 percentage point slower than its growth rate in April. The deceleration in headline CPI partly reflected energy and food prices. Energy prices grew by 1.2 percent in May, 2.2 percentage points slower than the 3.4 percent rate of growth recorded in April as the rate of growth in gasoline prices over the month of May, 2.3 percent, was 5.8 percentage points slower than its growth rate in April, 8.1 percent and near its rate in March, 2.2 percent. Meanwhile, food prices, which rose by 0.2 percent in April, registered a 0.2 percent decrease in May, similar to the rate of decline in March. Excluding the more volatile prices of energy and food, “core-CPI” rose by 0.2 percent over the month of May, similar to its growth rate in April. Shelter prices, which account for the largest portion of consumer expenditures, rose by 0.4 percent in May, 0.1 percent percentage point faster than its growth rate in April, 0.3 percent. Rental prices, a component of overall shelter prices, grew by 0.4 percent over the month, accelerating from the 0.3 percent growth rate in April. Since the increase in rental prices exceeded the monthly rise in overall inflation, as measured by core-CPI, then NAHB’s Real Rent Index rose, increasing by 0.2 percent over the month. Over the past twelve months, the Real Rent Index has risen by 1.5 percent.

Existing Condo Sales and Prices:

Sales of existing condo and co-ops, measured on a seasonally adjusted annual rate, grew by 1.6 percent in May. The month-over-month increase in existing condo and co-op sales reflects growth in the South, 3.7 percent, and the West, 6.7 percent. Sales growth in these two regions were partially offset by an 11.1 percent decline in the Midwest. In the Northeast sales were unchanged over the month. In addition to the nationwide growth in sales, the inventory of existing condo and co-ops also grew over the month. However, its rate of growth, 0.8 percent, lagged the percent increase in sales nationwide. There is an estimated 259,000 condos and co-ops in inventory. Since the pace of inventory growth was less than the rate of increase in sales, then 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, fell, dropping 2.1 percent over the month to 4.7 months. Median existing condo and co-op sales prices rose by 6.0 percent on a not seasonally adjusted basis over the past year to $229,600.

Building Materials:

The price of inputs to construction fell by 2.1 percent on a not seasonally adjusted basis over the 12 months ending in May 2016. 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 eased by 1.9 percent. The price of inputs to new non-residential construction fell by 2.7 percent while the price of inputs to new residential construction dropped 1.3 percent. Meanwhile, the price of maintenance and repairs construction fell by 2.7 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 2.9 percent while the price of inputs to residential maintenance and repairs declined by 2.4 percent. Twelve-month changes in the prices of individual building materials varied. The price of oriented strand board (OSB) grew by 27.6 percent, the price of cement rose by 4.7 percent, and gypsum prices increased by 2.1 percent. However, the price of softwood plywood declined by 10.1 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.