Market Pulse for January 2016

Market Pulse section compiled by Suzann Silverman. To comment, email ssilverman@cpexecutive.com.

Multifamily Starts:

After a steep decline in July, from 510,000 to 382,000, housing starts of buildings with five or more units, measured at a seasonally adjusted annual rate, have now risen for two consecutive months. In September 2015, housing starts of buildings with five or more units rose by 17.0 percent to 454,000. This increase follows the 1.6 percent growth that took place in August. Together, housing starts of buildings with five or more units have risen by 18.8 percent over the past two months. Since the monthly rate of growth is volatile, a three-month moving average is used to smooth the data. On a three-month moving average basis, housing starts of buildings with five or more units reached 408,000 in September. This is the fourth consecutive month that the three-month moving average has eclipsed 400,000. Prior to June 2015, the three-month moving average last exceeded 400,000 in November 1987.

CPI vs. Rent:

Consumer prices (CPI), measured on a seasonally adjusted basis, declined in September 2015. The September decline in consumer prices was faster than the rate of decrease in in August. In August 2015, consumer prices fell by 0.1 percent and in September prices fell by 0.2 percent. The acceleration in the decrease of consumer prices largely reflected a faster monthly fall in energy prices. In August, energy prices fell by 2.0 percent, but in September energy prices fell by 4.7 percent. Meanwhile, food prices rose by 0.4 percent—twice the growth rate in August 2015. While consumer prices overall experienced a faster pace of decline, “core-CPI,” which excludes the more volatile energy and food prices, recorded a faster pace of growth. In August 2015, core-CPI rose by 0.1 percent, but in September core-CPI grew by 0.2 percent. Faster growth in core-CPI partly reflected stronger growth of shelter prices. Shelter prices, which account for the largest portion of consumer expenditures, rose by 0.3 percent in September, 0.1 percentage point faster than its rate of growth in August, as rental prices, a component of the overall Shelter Index, increased by 0.4 percent. Since rental prices rose faster than overall inflation, as measured by core-CPI, then real rental prices also increased. NAHB’s Real Rent Index rose by 0.2 percent over the month of September 2015. Over the year, the Real Rent Index grew by 1.8 percent.

Existing Condo Sales and Prices:

Existing condo and co-op sales, measured at a seasonally adjusted annual rate, were unchanged over the month of September at 620,000. The stagnation in existing condo and co-op sales partly reflected a downward revision in the number of sales over the month of August. The latest release pushed existing condo and co-op sales for August down by 10,000 from 630,000. The lack of growth nationwide reflected offsetting changes in the South region and in the West. In the South, existing condo and co-op sales fell by 7.1 percent while in the West, sales rose by 14.3 percent. Sales of existing condo and co-ops in the Northeast and in the Midwest were unchanged over the month. Meanwhile, the September 2015 existing condo and co-op inventory level, 248,000, was 2.7 percent less than the level recorded in August 2015, 255,000. Since the pace of sales over the month remained unchanged while the inventory of existing condos and co-ops fell, 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, also fell, declining by 2.0 percent over the month to 4.8 months. Median existing condo and co-op sales prices rose by 1.9 percent on a not seasonally adjusted basis over the past year to $209,200.

Building Materials:

The price of inputs to construction fell by 5.3 percent on a not seasonally adjusted basis over the 12 months ending in September 2015. 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 5.2 percent. The price of inputs to new non-residential construction fell by 6.0 percent while the price of inputs to new residential construction dropped 4.3 percent. Meanwhile, the price of maintenance and repairs fell by 6.4 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 6.7 percent while the price of inputs to residential maintenance and repairs declined by 6.1 percent. Twelve-month changes in the prices of individual building materials varied. The price of cement rose by 6.3 percent and the price of gypsum grew by 0.6 percent. However the price of softwood plywood declined by 10.9 percent and the price of oriented strand board (OSB) declined by 4.7 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.