Economic Indicators Update: 2/23/17
While housing starts data for January fell 2.6% to an annual rate of 1.25 million units, Single Family construction actually rose by 1.9% to reach an annual rate of 823,000 units.
This gain brings construction of single family homes to the level seen November 2016, where they remain higher than most of last year’s activity.
The other component of the housing starts equation, construction of multifamily units, fell 10.2% in January to a 423,000 annual rate. This is not surprising as the data on the construction of multifamily housing is very volatile; it may fluctuate sharply from month-to-month.
Sales of Building Materials rose in December to $26.4 billion. This one percent gain marks four consecutive months of increases.
For the year as a whole, sales of building materials were $307 billion; this is a strong 6.5% improvement over 2015 when sales were $288 billion.
Sales at appliance stores still trail the prior year volumes. For December 2016 they were 5.3% below the same month in 2015. In the chart below we can see that, except for February, last year’s month-to-month sales, shown by the red line, are lower than the corresponding month of 2015. (Note that because appliance store sales are not seasonally adjusted, we can’t make valid comparison to the prior month — we can only compare to the same month prior year).
Inflation has been accelerating over the last few months. Prices in January had increased 2.5% over the preceding 12 months. This is the highest increase in inflation we’ve seen in nearly five years. Moreover, as the chart below shows, the annual inflation rate has been increasing every month since the middle of last year.
The University of Michigan’s Survey of Consumer Sentiment (http://www.sca.isr.umich.edu/) reveals that the index fell in February. This is driven by the current administration’s policies. Consumers who view them favorably have positive expectations for the future and those who have an unfavorable view have negative expectations.
Meanwhile, we see mortgage rates edged down last week to 4.15%. This is good news as rising mortgage rates are a hurdle to a full recovery in the housing and remodeling markets. As long as rates remain unchanged, or do not increase substantially, they will not be a critical factor in our industry.
Manuel Gutierrez, Consulting Economist to NKBA
Explanation of NKBA’s Economic Indicators Dashboard
The dashboard displays the latest value of each economic indicator. Note that all the data, except for “mortgage rate” and “appliance store sales” is seasonally adjusted and is represented at annual rates.
Remodeling Expenditures. This is the amount of money spent on home improvement projects during the month in question. It covers all work done for privately-owned homes (excludes rentals, etc.). The data is in billions of dollars and is issued monthly by the U.S. Department of Commerce.
Single Family Starts. It is the number of single family houses for which construction was started in the given month. The data is in thousands of houses and is issued monthly by the U.S. Department of Commerce.
Existing Home Sales. This data is issued monthly by the National Association of Realtors, and captures the number of existing homes that were sold in the previous month.
High-End Home Sales. This series represents sales of new homes priced at $750,000 and over. The data is released quarterly by the U.S. Department of Commerce, and is not seasonally adjusted. Thus a valid comparison is made to the same quarter of prior year.
Mortgage Rate. We have chosen the rate on 30-year conventional loans that is issued by the Federal Home Loan Mortgage Corporation (known popularly as Freddie Mac.) Although there are a large number of mortgage instruments available to consumers, this one is still the most commonly used.
Employees in Residential Remodeling. This indicator denotes the number of individuals employed in construction firms that do mostly residential remodeling work.