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NAHB logo National Association of Home Builders
December 15, 2011
David Crowe
NAHB Chief Economist
Eye on the Economy
Multifamily a Bright Spot in a Housing Market Showing Little Luster

The economic and housing news of the past few weeks suggests a continuation of the flat recovery.

The Federal Reserve’s Beige Book showed the nation’s economic activity growing at only a “slow to moderate” pace. While manufacturing activity expanded and consumer sales climbed modestly in most of the Fed’s bank districts, residential real estate remained weak, weighed down mostly by sluggish single-family housing construction.

In keeping with the moderate pace of employment growth seen during much of this year, 120,000 jobs were added in November, again below the level needed to accommodate an expanding labor force. More than half of November’s decline in the unemployment rate to 8.6% was due to a decrease in the labor participation rate, suggesting that the rate of unemployment will shift upward again in the next few months as discouraged workers return to the job market.

Despite efforts to pay down debt and build up savings, households continued to see their balance sheets deteriorate in the third quarter, with stock market declines wiping out $2.7 trillion of their financial assets. As a result, overall household net worth declined 5%.

While consumers in recent months have indicated that they view their current and future financial situations more favorably, the two main consumer confidence indexes remain at low levels, in line with those seen at the end of the recession.

Although home building — particularly single-family — remains slow, the NAHB/First American Improving Market Index continued to expand in December with the addition of 11 metro areas, raising the number of improving markets to 40. Largely absent from the index so far are major metropolitan markets that dominate the housing statistics.

Pointing to a bright spot in the broader U.S. housing market, the Fed’s Beige Book noted improvements in multifamily construction in New York, Philadelphia, Cleveland, Chicago and Minneapolis.

Meanwhile, reflecting consistent improvement in multifamily housing starts this year, NAHB’s Multifamily Production Index for the third quarter registered its fifth consecutive increase, reaching its highest reading since the fourth quarter of 2005.

While market absorptions drifted down over the first half of 2011, vacancy rates have steadily declined this year, which is a hopeful sign for future expansion in the multifamily market.

Credit conditions continue to restrain the housing recovery, with a recent survey showing that a majority of NAHB members saw the shortage of acquisition, development and construction credit (AD&C) worsen in the third quarter.

Builders are also struggling against a flawed appraisal process. In a recent survey, one in three builders reported losing signed sales contracts in the previous six months from appraisal values coming in below the contract sales price.

Flawed appraisals are also choking off AD&C credit, with falling appraised values for land and subdivisions under development leading some financial institutions to stop lending to developers and builders, to demand additional equity and even to call in performing loans.
Latest Postings
Declining Multifamily Vacancy Rates Point to Future Growth

The Survey of Market Absorption revealed some weakness in the multifamily sector in the first half of 2011, but declining multifamily vacancy rates are a hopeful sign for future multifamily market expansion. Posted: Dec. 12

Flawed Appraisals Impeding Home Sales

One in three builders reported losing signed sales contracts in the preceding six months because the appraised value of the home was below the contract sales price, according to a recent survey by NAHB. Posted: Dec. 9

NAHB Indexes for New and Existing Apartments Continue to Improve

NAHB’s Multifamily Production Index (MPI) improved for the fifth consecutive quarter. At 47.3 in this year’s third quarter, the index reached its highest level since the fourth quarter of 2005. Posted: Dec. 8

Household Balance Sheets Deteriorate During the Third Quarter

Stock market declines stripped almost $2.7 trillion from household financial assets in the third quarter. Posted: Dec. 8

Improving Markets Index: Monroe, La.

The growth of telecommunications giant CenturyLink, the presence of two excellent colleges, proximity to gas-rich Haynesville-Bossier Shale and prominence as a regional healthcare center put Monroe, La., on the NAHB/First American Improving Markets Index. Posted: Dec. 8

Credit for Builders Remains Tight

A majority of NAHB members reported that the availability of acquisition, development and construction (AD&C) loans worsened in the third quarter. Posted: Dec. 7

Twenty Metros Join List of Improving Housing Markets Index in December

The number of housing markets on the latest NAHB/First American Improving Markets Index rose from 30 to 41 — the index’s fourth consecutive monthly gain. Posted: Dec. 6

The Employment Situation for November Unemployment Rate Declines, But Is It Real?
A moderate 120,000 new jobs were created in November. The unemployment rate dropped 0.4 percentage points to 8.6%, but more than half the decline came from people leaving the labor force. Posted: Dec. 2
The Geography of Home Size and Occupancy

NAHB research examining the relationship between home size and the number of people residing in a given home indicates the median sizes of homes on a per-person basis are remarkably similar, despite homes being significantly smaller in central cities. Posted: Dec. 2

Residential Construction Spending Rises in October

Spending on private residential construction projects rose 3.4% during October, but overall total private residential construction spending has failed to gain forward momentum in the past year. Posted: Dec. 1

The Importance of Home Equity Loans for Remodeling
Residential energy-efficient tax credits introduced in 2008 have softened the impact of recent declines in an important source of funding for home improvements — home equity loans — on remodeling activity. Posted: Dec. 1
Fed Beige Book: More Slow Growth

Economic activity increased at a “slow to moderate pace” across the nation in the third quarter, according to the latest release of the Federal Reserve’s Beige Book. Posted: Nov. 30

Consumer Confidence Improves in November, But Remains Weak
The Conference Board’s Consumer Confidence Index (CCI) and the University of Michigan Consumer Sentiment Survey indicated a healthy increase in consumer confidence in November. Posted: Nov. 30
Pending Home Sales Bounce Back Strongly in October
Pending homes sales bounced back strongly in October, more than recovering the ground lost in declines over the previous three months, returning to the same level that was seen at the start of 2011. Posted: Nov. 30
Eye on the Economy Will Not Be Published on Dec. 29

Eye on the Economy will not be published on Thursday, Dec. 29, it's regularly scheduled publication date. Eye on the Economy will return on Jan. 12.

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