Market Pulse for November 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 fell by 6.9 percent over the month of August 2016 to a seasonally adjusted annual rate of 403,000. Despite the monthly decrease, the number of starts of buildings with five or more units eclipsed 400,000 for the third consecutive month. Year-to-date, the average number of starts per month of buildings with five or more units is 382,000. Over the same period in 2015, encompassing the months of January through August, starts of buildings with five or more units averaged 383,000. The residential construction data is consistent with the results from the NAHB Multifamily Production Index for the second quarter indicating a leveling off in multifamily production for this year.

Meanwhile, The NAHB Multifamily Vacancy Index (MVI), which measures respondent perceptions of vacancies in the multifamily housing market, increased three points to 42, with higher numbers indicating more vacancies. However, the MVI is still below the breakeven point of 50, which means that more respondents perceived a reduction in vacancy rates than perceived an increase. After peaking at 70 in the second quarter of 2009, the MVI improved consistently through 2010 and has been fairly stable since 2011. Historically, the MVI has shown to be a leading indicator of Census multifamily vacancy rates.

CPI vs. Rent:

Over the month of August 2016, headline consumer price growth (CPI) rose by 0.2 percent. Both food and energy prices were unchanged over the month. In the Food Price Index, the 0.2 percent decline in the price of food at home was offset by the 0.2 percent increase in food away from home. While in the Energy Price Index, the 0.9 percent drop in energy commodities such as gasoline and fuel oil was offset by a 0.8 percent increase in the price of energy services such as electricity and utility gas.

Excluding the, historically, more volatile prices of energy and food, “core-CPI” rose by 0.3 percent, faster than the 0.1 percent rate of growth recorded in July. Shelter prices, which account for the largest portion of consumer expenditures, rose by 0.3 percent in July, 0.1 percentage point faster than its growth rate in August. Rental prices, a component of overall shelter prices, also rose by 0.3 percent over the month. More precisely, core-CPI grew by 0.252 percent, shelter prices rose by 0.336 percent, and rental prices increased by 0.319 percent. Since the increase in rental prices precisely exceeded the monthly rise in overall inflation, as measured by core-CPI, then NAHB’s Real Rent Index rose, increasing by 0.066 percent on a monthly basis. Over the past twelve months, the Real Rent Index has risen by 1.445 percent.

Existing Condo Sales and Prices:

Sales of existing condos and cooperatives (co-ops), measured on a seasonally adjusted annual rate, surged over the month of August, but year-over-year growth was subdued. In August, sales of existing condominiums and co-ops rose by 10.5 percent. Regionally, month-over-month growth was recorded in the Northeast, 20.0 percent, the Midwest, 14.3 percent, and the South, 12.0 percent, but monthly growth in the West was unchanged. However, over the past year, sales of existing condominiums and co-ops rose by 1.6 percent as growth was only experienced by the South, 3.7 percent. Sales in the other three regions were unchanged over the year.

While sales rose nationwide in August, the inventory of existing condos and co-ops fell by 5.1 percent over the month. There are 240,000 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, declining by 13.2 percent over the month to 4.6 months. Median existing condo and co-op sales prices rose by 3.7 percent on a not seasonally adjusted basis over the past year to $225,100.

Building Materials:

The price of inputs to construction fell by 0.6 percent on a not seasonally adjusted basis over the 12 months ending in August 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 0.5 percent. The price of inputs to new non-residential construction fell by 1.2 percent, but the price of inputs to new residential construction rose by 0.2 percent. Meanwhile, the price of maintenance and repairs construction fell by 1.0 percent over the past year. The price of inputs to non-residential maintenance and repairs decreased by 1.3 percent while the price of inputs to residential maintenance and repairs declined by 0.6 percent. Twelve-month changes in the prices of individual building materials varied. The price of oriented strand board (OSB) grew by 34.9 percent, the price of cement rose by 5.1 percent, and gypsum prices increased by 3.7 percent. However, the price of softwood plywood declined by 1.8 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.