January 12, 2012
Eye on the Economy
Housing Sector Finally Gaining Some Momentum

2011 ended on a positive note with economic activity continuing to expand at a moderate rate and the housing sector finally gaining some positive momentum after bouncing along the bottom for most of the year.

Real growth of the gross domestic product was adjusted down to 1.8% for the third quarter, but it remained an improvement over growth of 0.4% in the first quarter and 1.3% in the second. Expectations are that statistics for the fourth quarter will show GDP growth strengthening further as businesses replenished inventories and the holidays boosted retail spending.

Despite concerns over the sovereign debt crisis in the Euro zone and slowing growth in emerging markets, particularly China, domestic conditions have shown improvement and the Federal Open Market Committee decided at its Dec. 13 meeting to maintain its current course.

After a mid-year slump, employment growth began to regain some momentum with the addition of 200,000 jobs and a decline in the unemployment rate to 8.5% in December, down 0.6 percentage points since August.

Employment growth is being supported by a steadily improving rate of job openings, which remained steady at 2.4% in October. The hiring rate in the construction sector was at a relatively high level of 5.8% in October, with construction job openings on pace to exceed total separations for the first time since 2006.

Largely positive housing news over the past few months suggests the recovery may finally be underway.

The number of metropolitan areas on the NAHB/First American Improving Market Index expanded to 76 in January, a net increase of 35, following similarly solid gains in November and December.

The NAHB/Wells Fargo Housing Market Index of builder confidence in the single-family market has also made steady gains over the past three months, rising seven points since September to a level of 21 in December. With the exception of a reading of 22 at the height of home buyer tax credit sales in the spring of 2010, the December level was the highest since August 2007.

Despite a dismal year for housing production — which is likely to prove to be the worst in the 52 years that similar data has been gathered — there was a solid increase in housing starts and building permits in November.

The gains were led by the multifamily sector, driven by rising demand for rental housing as recession-nipped household formation rates begin to show signs of recovery. With rents increasing and rental vacancy rates falling in recent months, starts in buildings with five or more apartments have grown strongly, recovering to nearly two-thirds of more normal levels.

Single-family production, on the other hand, saw little improvement through 2011 and remains at roughly one-third of more normal levels.
Latest Postings

Seventy-six metropolitan areas appeared on January’s NAHB/First American Financial Improving Markets Index — representing 31 states and Washington, D.C. The list was dominated by smaller places, suggesting that the current economic and housing recovery is diverse. Posted: Jan. 9

December payroll employment increased by 200,000 and the unemployment rate declined to 8.5%. Posted: Jan. 6

Congress failed to approve the 2011 “tax extenders” bill, setting up a policy fight in 2012 over the Section 25C tax credit for energy-efficient remodeling, the Section 45L tax credit for new energy-efficient homes, the deduction for mortgage insurance payments and the Section 198 brownfield expensing rule. Posted: Jan. 5

Private residential construction spending increased 2% in November but was down 1.4% on a non-seasonally adjusted basis from a year earlier. Posted: Jan. 3

Added to the NAHB/First American Improving Markets Index, Bismarck N.D., derives its economic strength from a large and rapidly growing regional healthcare center, its excellent infrastructure, its role as the state capital and its close proximity to the recently discovered oil deposits at the Bakken shale and Three Forks-Sanish formation. Posted: Jan. 3

One of the most important stories of 2011 — and shaping up as one of the most important stories for 2012 — is rising pent-up housing demand. This “shadow demand” was quantified in an NAHB research paper last February. Posted: Dec. 29

Among the most common tax and housing policy questions fielded by NAHB economists last year was whether a 3.8% sales tax would hit home sales in 2013. The answer is no. Posted: Dec. 28

If producers of gypsum wallboard succeed in raising prices by 35% this year — as they announced in November — gypsum prices will rise by 20% over the long-term trend. Posted: Dec. 27

While the largest states, in terms of homes and population, witnessed the largest claims for the 25C remodeling tax credit and the 25D residential energy tax credit, there was also geographic clustering of credit claims on a per taxpayer basis. Posted: Dec. 26

In October, Eye on Housing profiled updated NAHB research estimating the value various features add to a home. Posted: Dec. 25

In August, NAHB economists mapped the locations of the nation’s second homes. They found that the definition of a “second home” for the purposes of the mortgage interest tax deduction includes properties that many people would not regard as a second home. Posted: Dec. 24

The cost of constructing an average single-family home was about $80 a square foot in both 2009 and 2011, according to an NAHB study released in November. Posted: Dec. 23

Real GDP grew at a seasonally adjusted annual rate of 1.8% in the third quarter of 2011 in a third estimate, a little weaker than the earlier estimate of 2.0%. Posted: Dec. 22
House prices remained steady in October, with the Federal Housing Finance Agency reporting a slight 0.2% decrease in its monthly purchase-only house price index. Posted: Dec. 22
An NAHB study released in December on the size of homes and the number of occupants per home found that home sizes — measured on a per occupant basis — are remarkably similar across the country. Posted: Dec. 22
Existing home sales rose 4.0% in November and were 12.2% higher than their year-earlier level. The National Association of Realtors also released benchmark revisions adjusting sales and inventory down an average of 14% over the past three years. Posted: Dec. 21
Added to the NAHB/First American Improving Markets Index, Athens, Ga., boasts an economy driven by a fast growing regional healthcare center and a large number of post-secondary educational institutions anchored by the University of Georgia. Posted: Dec. 21
An NAHB study released in June on the construction sector’s labor market highlighted the importance of independent contractors. Posted: Dec. 21
State and local government property tax collections increased modestly in the third quarter of 2011, but they were down 1.5% year-over-year, as the property tax base was eroded by declining house prices. Posted: Dec. 21

Starts in buildings with five or more apartments surged 32% in November. Multifamily housing production has more than doubled since its trough in late 2009, and has recovered to nearly two-thirds of more normal levels. Posted: Dec. 20

The ratio of single-family to multifamily starts is likely to fall in the short-run before returning to its upward trend over the long-term, according to NAHB research. Posted: Dec. 20
An NAHB study released in October found that 25% of renters were paying more than 50% of their income in rent. Posted: Dec. 20

Housing starts and permits were up in November by 9% and 6% respectively, with both single-family and multifamily activity increasing. Posted: Dec. 20

One-third of rental housing consists of single-family homes and townhouses, according to an NAHB study released in July. Posted: Dec. 19

The NAHB/Wells Fargo Housing Market Index increased two points to 21 in December, the highest since August 2007. Posted: Dec. 19

The Consumer Price Index was unchanged on a seasonally adjusted basis in November, with further easing in energy prices offsetting a slight increase in the food index and a modest gain in the core index. Posted: Dec. 16

Producer prices bounced back in November after easing the previous month, advancing 0.3%, on the back of a jump in food prices. The composite index of inputs into residential construction was unchanged in November. Posted: Dec. 15

Burlington, Vt., was added to the NAHB/First American Improving Markets Index, buoyed by a rise in software development for anchors IBM and, the increasing popularity of telecommuting and the growing appeal of its local culture, which promotes energy efficiency, eating locally produced food and being “green.” Posted: Dec. 14

The statement following the Federal Reserve Board’s Dec. 13 FOMC meeting was largely a rerun of the statement issued after its November meeting, with the Fed maintaining current policies. Posted: Dec. 14

Total job openings for all non-farm sectors were essentially unchanged at 3.3 million in October. The hiring rate in the construction sector — both residential and non-residential — remained at a relatively high level of 5.8% in October. Posted: Dec. 13

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