February 2017

Market Pulse section compiled by IvyLee Rosario. To comment, email ivylee.rosario@cpe-mhn.com.

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 fell by 7.7 percent over the month of February 2017, its second consecutive monthly decline. Compared to the same month one year ago, starts of buildings with five or more units rose by 11.2 percent, its third consecutive annual increase. After two consecutive months in which the starts of buildings with five or more units exceeded 400,000 on a seasonally adjusted annual rate basis, there were 396,000 in February. However, on a three-month moving average basis, a calculation used to smooth the monthly volatility, starts of buildings with five or more units remained above the 400,000 mark for the third consecutive month, reaching 426,000 in February.

The National Association of Home Builders’ Multifamily Vacancy Index (MVI) remained unchanged at 42 in the fourth quarter of 2016. The MVI measures the multifamily housing industry’s perception of vacancies with lower numbers indicating fewer vacancies. After peaking at 70 in the second quarter of 2009, the MVI has consistently fallen through 2010 and has been generally stable at lower levels since 2011. Historically, the MVI has shown to be a leading indicator of Census multifamily vacancy. The results of NAHB’s MPI indicate that momentum in the apartment and condominium market continues.

CPI vs. Rent:

The headline consumer price index (CPI) rose by 0.1 percent in February 2017, slower than the 0.6 percent rate of growth recorded in January and its smallest one-month rise since July 2016. The slower growth in the CPI over the month partly reflected a reversal in the trend of energy prices. The Energy Price Index rose by 4 percent in January but fell by 1 percent over the month of February. Meanwhile, food prices rose by 0.2 percent in February, its second consecutive monthly increase. Excluding historically volatile food and energy prices, “core” CPI rose by 0.2 percent in February, slower than the 0.3 percent increase in January. However, growth in shelter prices accelerated in February to 0.3 percent from the 0.2 percent rate of growth in January. Shelter prices are the largest consumer expenditure category. Rental prices, a component of the shelter index, grew by 0.3 percent in February. Since the increase in rental prices exceeded growth in overall inflation, as measured by core-CPI, then NAHB’s Real Rent Index grew over the month, increasing by 0.1 percent. Over the past year, NAHB’s Real Rent Index rose by 1.6 percent.

Existing Condo Sales and Prices:

In February 2017, sales of existing condominiums and cooperatives fell by 9.2 percent. However, over the past 12 months, sales were 1.7 percent higher. Regionally, the 9.2 percent decline in condo and co-op sales nationwide reflected losses in the Northeast (-15.4%), the West (-12.5%) and the South (-7.1%). Meanwhile, sales in the Midwest were unchanged over the month. The inventory of existing condos and co-ops rose by 20.9 percent in February. There are 208,000 condos and co-ops in inventory. Since the pace of sales growth, which was negative, lagged the rate of inventory growth, 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, increased by 31.3 percent in February to 4.2 months. Median prices on condos and co-ops nationwide rose by 8.2 percent over the past year to $216,100 in February.

Building Materials:

The price of inputs to construction rose by 3.6 percent on a not seasonally adjusted basis over the 12 months ending in February 2017. 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 3.6 percent. The price of inputs to new non-residential construction climbed 3.7 percent while the price of inputs to new residential construction rose by 3.2 percent.

Meanwhile, the price of maintenance and repairs construction grew by 3.7 percent over the past year. The price of inputs to non-residential maintenance and repairs rose by 4.1 percent while the price of inputs to residential maintenance and repairs declined but increased by 3 percent. The fact that the 12-month increase in the inputs to construction, 3.6 percent is both below the change in maintenance and repair and equal to the annual growth in new construction costs may due to the rounding that occurs at each stage of these calculations.

Furthermore, the price of oriented strand board (OSB) grew by 30.4 percent over the past 12 months, cement (5.5%) and Gypsum (7.8%). However, the price of softwood plywood fell 1.2 percent.

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.