After a weak performance for the economy as a whole during the first quarter, spring is a time for improvements – for homes and the overall housing market.
May is National Remodeling Month, and NAHB has useful data for remodelers who want to know why home owners are undertaking improvements, as well as the most common types. Among remodelers participating in an NAHB industry survey, bathroom remodeling was cited as the most common project, narrowly beating out kitchen remodeling. Window and door replacements, whole housing remodeling and room additions rounded out the top five.
Data from the American Housing Survey indicate that home owners are most likely to use a professional remodeler for jobs involving HVAC systems and roofing followed by siding, windows/doors, electrical systems, plumbing and floors. According to the NAHB survey, the most common reasons for remodeling included a desire for better amenities, a need to replace or repair old components, and a need for additional space in the home.
Home improvement spending has a direct economic benefit on the economy. New estimates from NAHB indicate that every $1 million in remodeling spending creates 8.9 jobs. These estimates also note that building 100 single-family homes creates 297 jobs, and developing 100 multifamily units generates 113 jobs.
The role of housing investment as a job creator was highlighted by NAHB in testimony before the Senate Economic Policy Subcommittee hearing “Drivers of Job Creation.” That hearing involved a discussion of the transitions in the construction labor market as housing construction continues to recover. March data from the Bureau of Labor Statistics JOLTS survey reveal 104,000 unfilled construction sector jobs, as firms in some markets report challenges in filling vacant positions.
Despite disappointing housing data at the start of 2014, the housing recovery continues. The NAHB/First American Leading Markets Index (LMI) rose one point in May to a level of 0.88. The LMI measures how close local markets are to normal conditions, based on reading of home prices, labor markets and housing construction permits. About one-quarter of all metro areas showed improvement from March to April on the LMI and 300 (85%) showed improved from May 2013.
As of the first quarter 2014, housing’s share of GDP stood at 15.5%, with home building contributing three percentage points of that total. NAHB is forecasting solid growth in single-family starts and continued expansion of multifamily development for the year; thus, housing’s share of the economy should continue to grow.
Residential construction spending in March posted a small increase but remains effectively unchanged over the course of 2014 thus far. The current pace of home construction spending ($369.8 billion on a seasonally adjusted annual basis) is 0.8% over February and 16% higher than a year ago. From March 2013, on a three-month average basis, single-family construction spending has increased by 16.3%, multifamily is up by 30.8%, and remodeling has grown by 12.8%.
The NAHB single-family 55+ survey reported the most positive first quarter market conditions for senior housing development in its history. Compared to the first quarter of 2013, the single-family index increased four points to a level of 50, which is the highest first-quarter reading since the inception of the index in 2008 and the 10th consecutive quarter of year –over- year improvements. There are many factors contributing to the positive signs in the 55+ housing market, including rising house prices and low interest rates that are helping baby boomers sell their current homes at a favorable price and in turn, purchase a new home more suited to their preferred lifestyles.
Recent declines in housing affordability remain an industry headwind as the housing sector meets the traditional spring selling season. Home prices continue to rise, with the S&P/Case Shiller 20-City Index up 0.8% in February and gaining 12.9% over the prior 12 months.
For the overall housing market, data from the Federal Reserve’s Senior Loan Offer Opinion Survey suggest that demand for mortgages weakened during the first quarter, with many regional banks reporting tightened lending standards. Nonetheless, housing affordability conditions remain positive by historical standards. The NAHB/Wells Fargo Housing Opportunity Index ticked up during the first quarter of 2014. Per the HOI, 65.5% of all homes sold between the beginning of January and end of March were affordable to families earning the U.S. median income of $63,900.
In macroeconomic news, GDP growth in the first quarter was a disappointing 0.1% gain, with downward revisions expected. Weather impacts took a toll on investment components, including home building during the start of the year. However, personal consumption expenditures remained solid, growing 3%.
The April employment report brought relatively positive news, with 288,000 net jobs created for the month. The unemployment rate fell from 6.7% to 6.3%, although that decline was due to large 806,000 decline in the number of people in the labor force.
Finally in analysis news, NAHB followed up prior examinations of local housing markets using Census data. The most recent study tracked the top markets for changes in single-family and multifamily market shares. Among the findings: Areas with the largest gains in single-family market concentration tended to have above- average population growth. Top markets using this measure included Fairbanks (Alaska), St. George (Utah), Yuma (Ariz.), and Yakima (Wash.).