The National Association of Home Builders (NAHB) said its Housing Market Index has finally climbed out of the low 60’s range where it has hovered for months. The uptick in the index measures the confidence of builders in the new home market, hopefully indicating they are emboldened to start building again.
And right on cue, there was a halfway good residential construction report. Permits rose a slight 0.6% from March (with the West up by 5%) and starts were stronger, gaining 5.7% from the previous month. Single-family starts, which have been even less robust than the overall number, picked up by 6.2%. There were notable increases for starts in the Northeast (up 84%) and Midwest (42%), probably signaling better weather but also compensating for some 5 point plus declines in the West and South.
Still, neither permits nor starts have caught up with their year earlier numbers. Permitting is down by 5.0% from last April and starts by 2.5%.
Interest rates continued to hold in the low 4% range this week. Sam Khater, Freddie Mac’s chief economist, says, “Modestly weaker consumer spending and manufacturing data, along with continued jitters around trade policy, caused interest rates to decline throughout the yield curve. While signals from the financial markets are flashing caution signs, the real economy remains on solid ground with steady job growth and five-decade low unemployment rates which will drive up home sales this summer.”
Home Improvement Spending Down
If anything saved the residential construction industry during the housing crisis it was remodeling. While national expenditures on new construction were cut in half for the multifamily sector and plunged by 80% for single-family building spending, home improvement expenditures declined by less than one-third. Home improvement dollars, tracked by the Census Bureau, include spending for remodeling, major replacements and additions to owner-occupied housing.
Remodeling recovered faster than the rest of the market as well. Starting in mid-2009, spending began to grow by an average of 0.1% per month. Then in 2013 it took off, gaining about 14% per year to an all-time high in April of last year of $216.7 billion. The NAHB said aging, both of the housing stock which needed upgrades and homeowners with their desire to age in place, drove the recovery.
But it has been downhill since that peak. While we haven’t seen any real explanation for the slowdown–neither the housing stock nor its owners are getting any younger–the Census Bureau reports home improvement spending has fallen more than 14% year-over-year and NAHB says its Remodeling Market Index–which is similar to the HMI explained above–is mirroring a downturn in construction remodelers’ confidence and their reports of fewer calls, especially for major replacements and additions.