Market Pulse for March 2016

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

Multifamily Starts:

In December 2015, housing starts of buildings with five or more units gave back a portion of the gains made in November 2015. After growing from 344,000 to 378,000, a 9.9 percent increase, between October and November, housing starts of buildings with five or more units fell by 3.4 percent to 365,000 over the month of December. Despite the one-month decline, the number of housing starts of buildings with five or more units in 2015, 385,000, exceeded the level in 2014, 342,000, by 12 percent. Since reaching a low of 98,000 in 2009, housing starts of buildings with five or more units climbed in each successive year. However, the rate of increase from 2010 onward has decreased in each year. Between 2010 and 2015, housing starts of buildings with five or more units recorded levels of 104,000, 167,000, 234,000, 294,000, 342,000 and 385,000 in 2010, 2011, 2012, 2013, 2014 and 2015, respectively. The corresponding rates of growth for each of these years is 7 percent, 61 percent, 40 percent, 26 percent, 16 percent and 12 percent.

CPI vs. Rent:

Consumer prices (CPI) overall, measured on a seasonally adjusted basis, fell over the month of December 2015 by 0.1 percent. Over the past 12 months, the year of 2015, consumer prices rose by 0.7 percent. The monthly decrease in overall consumer prices partly reflected a 2.4 percent drop in energy prices as gasoline prices fell by 3.9 percent. Meanwhile, food prices fell by 0.2 percent over the month of December. Over the year, energy prices dropped 12.6 percent while food prices rose by 0.8 percent. Excluding the more volatile food and energy prices, “core-CPI” rose by 0.1 percent over the month and 2.1 percent for the year. 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 for the month and 3.2 percent over the year. Rental prices, a component of overall shelter prices, grew by 0.2 percent in December 2015. Over the year, rental prices rose by 3.7 percent. Since the increase in rental prices exceeded the rise in overall inflation, as measured by core-CPI, then real rental prices also grew. According to NAHB’s Real Rent Index, real rental prices rose by 0.1 percent over the month of December and by 1.6 percent over the past 12 months.

Existing Condo Sales and Prices:

Existing condo and co-op sales, measured at a seasonally adjusted annual rate, rose by 4.9 percent over the month of December 2015 to 640,000. On an annual basis, existing condo and co-op sales were 2.9 percent above their level in 2014. Each of the four major regions of the country recorded annual increases, led by the West. In the West, existing condo and co-op sales grew by 5.7 percent, 2.8 percentage points faster than growth nationwide. However, annual growth rates in Northeast, 2.7 percent, in the Midwest, 2.6 percent, and in the South, 1.5 percent, all lagged the nationwide pace. Meanwhile, the inventory of existing condo and co-ops fell by 10.0 percent to 208,000 over the month of December and by 3.7 percent over the year of 2015. Since the pace of sales over the month rose 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, declined, falling by 13.3 percent over the month to 3.9 months. Over the year, the months’ supply of existing condos and co-ops, 5.0, was 2.0 percent lower than its level in 2014, 5.1. On an annual basis, median existing condo and co-op sales prices rose by 3.1 percent over the year to $210,700.

Building Materials:

The price of inputs to construction fell by 4.0 percent on a not seasonally adjusted basis over the twelve months ending in December 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 3.8 percent. The price of inputs to new non-residential construction fell by 4.0 percent while the price of inputs to new residential construction dropped 3.3 percent. Meanwhile, the price of maintenance and repairs fell by 4.8 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 5.1 percent while the price of inputs to residential maintenance and repairs declined by 4.8 percent. Twelve-month changes in the prices of individual building materials varied. The price of cement rose by 6.7 percent and the price of oriented strand board (OSB) grew by 14.2 percent. However the price of softwood plywood declined by 15.9 percent and the price of gypsum decreased by 0.2 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.