December 2016

Market Pulse section compiled by IvyLee Rosario. To comment, email [email protected].

Multifamily Starts:

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development, starts of buildings with five or more units continued to show wide swings on a monthly basis. In December 2016, these buildings rose by 53.9 percent to a seasonally adjusted annual rate of 417,000. The significant change over the month of December follows the 38.7 percent drop in November. In October, that amount rose by 72 percent, erasing the 39.1 percent fall in September.

Over the year, starts of buildings with five or more units fell by 3.1 percent to 374,000. However, its level at the end of 2016 is 283 percent above its 2009 low, 98,000. In addition, the number of these starts in 2016 is 24.7 percent above its average level between 2000 and 2007, 300,000. In contrast, the number of starts of buildings with two to four units rose from 11,000 units in 2015 to 12,000 in 2016. In 2009, there were also 11,000 starts of two to four unit buildings. However, the number of starts of buildings with two to four units is 69.1 percent below its 2000 to 2007 average of 38,000.

CPI vs. Rent:

The headline consumer price index (CPI) rose by 2.1 percent over the past 12 months ending in December 2016. This is the first time since June 2014 that inflation has reached or exceeded 2 percent. The growth in the CPI over the year partly reflects a 5.4 percent increase in energy prices. However, food prices fell by 0.2 percent over the year reflecting declines in the first half of 2016 and then stagnancy in the second half. Excluding historically volatile food and energy prices, “core” CPI rose by 2.2 percent as shelter costs, the major component of the index, rose by 3.6 percent. Rental prices, a component of the overall shelter costs, grew by 4 percent over the year. Since the increase in rental prices over the past 12 months exceeded the rise in overall inflation over the same time period, as measured by core-CPI, then NAHB’s Real Rent Index rose, increasing by 1.7 percent over 2016. More precisely, rental prices grew by 3.9 percent over 2016 and core-CPI rose by 2.2 percent resulting in a 1.7 percent increase in NAHB’s Real Rent Index.

Existing Condo Sales and Prices:

In December 2016, sales of existing condominiums and cooperatives fell by 10.3 percent, however, over the year, the number of sales in 2016, 614,000, was 1 percent higher than its level in 2015, 608,000. Regionally, the 1 percent increase in condo and co-op sales nationwide reflected gains in the Midwest (5.1%), the West (2.7%) and the Northeast (0.9%). However, sales in the South fell by 1.1 percent in 2016. Meanwhile, the inventory of existing condos and co-ops fell by 8.9 percent over 2016. There are 194,000 condos and co-ops in inventory. Since the pace of sales growth, which was positive, exceeded the rate of inventory growth, which was negative, 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 by 6.3 percent in 2016 to 4.5 months. Consistent with sales growth and a shrinking inventory, median prices on condos and co-ops nationwide rose by 5 percent to $221,200 in 2016.

Building Materials:

The price of inputs to construction rose by 2.4 percent on a not seasonally adjusted basis over the 12 months ending in December 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 increased by 2.4 percent. The price of inputs to new non-residential construction climbed 2.2 percent while the price of inputs to new residential construction rose by 2.5 percent. Meanwhile, the price of maintenance and repairs construction grew by 2.3 percent over the past year. The price of inputs to non-residential maintenance and repairs rose by 2.4 percent while the price of inputs to residential maintenance and repairs declined by increased by 2.2 percent. Twelve-month changes in the prices of individual building materials also showed gains. The price of oriented strand board (OSB) grew by 13.8 percent, cement (4.4%), gypsum (2.0%) and softwood plywood (8.7%).

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.