Market Pulse for June 2016

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

Multifamily Starts:

Housing starts of buildings with five or more units have oscillated in recent months. In March 2016, starts of buildings with five or more units fell by 8.5 percent to a seasonally adjusted annual rate of 312,000. Over the previous 12 months dating back to March 2015, these housing starts have risen on a monthly basis six times—March 2015, April, June, September, November and February 2016—while falling on a monthly basis in the other six months. However, using the three-month moving average to smooth the month-to-month volatility makes the path of five or more unit building starts clearer. In March 2015 the three-month moving average of housing starts of buildings with five or more units totaled 324,000. By June the three-month moving average reached 437,000. Since June the three-month moving average has fallen back to 327,000, its average level in March 2016. Despite the decline in the three-month moving average, NAHB’s Multifamily Production Index, which fell by four points over the fourth quarter of 2015 and currently sits at 52, continues to indicate that builders and developers are confident in the apartment and condominium market. A reading above 50 indicates that more respondents report conditions are improving than report conditions are getting worse.

CPI vs. Rent:

Consumer prices (CPI) overall, measured on a seasonally adjusted basis, continue to move with fluctuations energy prices. In March 2016 “headline” CPI rose on a monthly basis by 0.1 percent, reversing the 0.2 percent decline recorded in February 2016. After falling by 6.0 percent in February, energy prices rose by 0.9 percent in March. Meanwhile food prices rose 0.2 percent in February, but fell by 0.2 percent in March. Excluding the more volatile prices of energy and food, “core-CPI” rose by 0.1 percent over the month of March, 0.2 percentage point below its 0.3 percent recording in February. Deceleration in core-CPI partly reflected a slowdown in the growth rate of shelter prices. Shelter prices, which account for the largest portion of consumer expenditures, rose by 0.2 percent in March, 0.1 percent percentage point less than its rate in February, 0.3 percent. Rental prices, a component of overall shelter prices, grew by 0.3 percent over the month, in-line with the 0.3 percent rate of monthly growth experienced in both January and February. 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 past year, the Real Rent Index is up by 1.4 percent.

Existing Condo Sales and Prices:

Following two consecutive monthly declines, existing condo and co-op sales, measured at a seasonally adjusted annual rate, rose by 1.8 percent over the month of March 2016. However, they remain 6.6 percent below their level from one year ago. The month-over-month increase in existing condo and co-op sales reflects growth in the Northeast, 10.0 percent and in the South, 4.2 percent. Meanwhile, sales in the Midwest were unchanged over the month and in the West sales fell by 7.1 percent. While sales of existing condos and co-ops rose over the month, the inventory rose even more. In March 2016, the inventory of existing condo and co-ops grew by 7.6 percent to 242,000. Since the pace of inventory growth outstripped 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, rose, climbing by 4.2 percent over the month to 5.0 months. Median existing condo and co-op sales prices rose by 4.6 percent on a not seasonally adjusted basis over the past year to $209,600.

Building Materials:

The price of inputs to construction fell by 1.9 percent on a not seasonally adjusted basis over the 12 months ending in March 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 1.8 percent. The price of inputs to new non-residential construction fell by 2.5 percent while the price of inputs to new residential construction dropped 1.2 percent. Meanwhile, the price of maintenance and repairs construction fell by 2.6 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 2.8 percent while the price of inputs to residential maintenance and repairs declined by 1.9 percent. Twelve-month changes in the prices of individual building materials varied. The price of cement rose by 5.1 percent and the price of oriented strand board (OSB) grew by 10.0 percent. However the price of softwood plywood declined by 15.0 percent and the price of gypsum fell by 3.3 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.