Market Pulse for February 2016

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

Multifamily Starts:

In November 2015, housing starts of buildings with five or more units recovered a portion of production pace lost over the month of October. Measured on a seasonally adjusted annual rate basis, housing starts of buildings with five or more units fell by 26 percent in October to 337,000. However, in November, production rose by 18 percent to 398,000. Despite the month-over-month fluctuation, the number of these housing starts, at 301,000, still exceeds the average monthly level recorded between 2000 and 2007. Meanwhile, its contribution to total housing production has nearly doubled. Between 2000 and 2007, housing starts of buildings with five or more units accounted for 18 percent of the total, including single-family, two-to-four-unit buildings, and five-or-more-unit buildings combined. In November 2015, these starts represented 34 percent of total housing production.

CPI vs. Rent:

Consumer prices (CPI) overall, measured on a seasonally adjusted basis, were unchanged over the month of November 2015. However, stagnancy in the headline price index masked price changes in the individual components. Specifically, falling energy and food prices offset gains elsewhere. In November, energy prices declined by 1.3 percent, reversing the 0.3 percent gain in October. Meanwhile, food prices, which rose by 0.1 percent in October, fell by 0.1 percent in November. Excluding the more volatile prices of energy and food, “core-CPI” rose by 0.2 percent over the month of November, similar to its growth rate in both September and October. Growth in core-CPI partly reflected an increase in shelter prices. Shelter prices, which account for the largest portion of consumer expenditures, rose by 0.2 percent in November as rental prices, a component of overall shelter prices, grew by 0.2 percent. Since the increase in rental prices matched the monthly rise in overall inflation, as measured by core-CPI, real rental prices were unchanged over the month. NAHB’s Real Rent Index was flat over the month of November, but over the past year, the Real Rent Index is up by 1.6 percent.

Existing Condo Sales and Prices:

Existing condo and co-op sales, measured at a seasonally adjusted annual rate, rose by 1.7 percent over the month of November to 610,000. The monthly increase in existing condo and co-op sales reflected a downward revision in the pace of October sales from 610,000 to 600,000. Moreover, the nationwide increase in existing condo and co-op sales was due to a 12 percent rise in sales in the South. In contrast, sales in the Midwest and in the Northeast fell by 12.5 percent and 7.7 percent, respectively. The South accounted for 46 percent of sales in November, while together, sales in the Midwest and the Northeast represented 31 percent. Sales in the West were unchanged over the month. Meanwhile, the inventory of existing condos and co-ops fell by 4.9 percent to 231,000. Since the pace of sales over the month rose while the inventory of existing condos and co-ops fell, 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, declined, falling by 8.2 percent over the month to 4.5 months. Median existing condo and co-op sales prices rose by 4.7 percent on a not seasonally adjusted basis over the past year, to $211,400.

Building Materials:

The price of inputs to construction fell by 4.2 percent on a not seasonally adjusted basis over the 12 months ending in November 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 4.1 percent. The price of inputs to new non-residential construction fell by 4.6 percent, while the price of inputs to new residential construction dropped 3.3 percent. Meanwhile, the price of maintenance and repairs fell by 5.2 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 5.5 percent, while the price of inputs to residential maintenance and repairs declined by 5.1 percent. Twelve-month changes in the prices of individual building materials varied. The price of cement rose by 6.2 percent, and the price of oriented strand board (OSB) grew by 6.9 percent. However, the price of softwood plywood declined by 16.8 percent, and the price of gypsum decreased by 1.1 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.