Market Indicators for the Home Building Industry in Northwestern Wisconsin May 2012 Volume 2, Issue 5
National Housing Starts in April - A Positive Signal New residential construction posted promising gains in April according to a joint release from the Census Bureau and Department of Housing and Urban Development. Preliminary estimates for housing starts show a seasonally adjusted annual rate of 717 thousand units, split between 492 thousand single family units and 225 thousand multifamily units, gains for both sectors. This is the sixth consecutive month with starts near or above 700 thousand. There was some concern that the slower pace in March was an indication that a warm winter had pulled activity forward and the spring months could be weak as a result, but the strength of the April figures suggests momentum, rather than payback, will be the trend in coming months.
Building permit issuance did slow in April, but the decline was concentrated in the multifamily sector and brought April multifamily permitting more in line with the earlier trend. The starts numbers were consistent with the release of the NAHB/Wells Fargo Housing Market Index (HMI) which showed improving builder sentiment. In particular, builders’ comments referred to increasing traffic in model homes, but also increasing commitment from buyers, in the form of deposits for sales. This continuing upward trajectory in housing starts and builder sentiment suggests that consumers are regaining their confidence, and bodes well for a strengthening housing recovery.
Local Housing Permits in April - Mixed Signals Despite national data suggesting the beginning of the housing market recovery, local permit data remains unchanged in many of the NABA regions. Permit data comparing January through April of 2012 to the same time period in 2011 paint similar picture. While four out of the five counties reported an increase in permits from March to April 2012, three of the five counties show permit levels down from the same period last year. Burnett County remained unchanged while Bayfield County showed an improvement over the same period last year. When tracking permit data from 1999 to 2011, permit levels peaked for most NABA regions between 2001 - 2004. The years that follow
show permit levels dropping significantly to only 20 30% of peak levels. Burnett County appears to have bottomed out in 2009 and has shown increases in permit levels in the years that follow although nowhere near its peak levels. It will be interesting to see actual permit statistics for the upcoming months. Early projections indicate a year much like 2011. April’s permit figures are promising and when combined with other indicators may indicate that we have reached bottom.
Northland Area Builders Association, 29148 Mail Road, Danbury, WI 54830 Tel: 715-259-3486 | Fax: 888-825-8073 Email: naba@centurytel.net | Online: www.northlandareabuilders.com
Housing Dashboard
Source: US Bureau of Labor Statistics & US Census Bureau
Ashland County
Bayfield County
Burnett County
Sawyer County
Washburn County
Wisconsin Construction Employment (seasonally adjusted)
Wisconsin 2012
Unemployment Rate
(seasonally adjusted)
Wisconsin Privately Owned Housing Starts (# of units)
Apr
6.7%
9.5%
11.3%
8.4%
10.5%
8.0%
86,400
758
Mar
6.8%
13.0%
10.3%
9.6%
12.2%
9.6%
87,900
588
Feb
6.9%
92,300
369
Jan
6.9%
90,000
233
1 & 2 Family Housing Permits
Source: US Census Bureau
Ashland County
Bayfield County
Burnett County
Sawyer County
Washburn County
Current Year Total
0
18
14
13
6
April March February January
0 0 0 0
14 1 1 2
8 4 0 2
9 0 1 4
4 1 1 0
2011 Year End Totals
1
57
93
82
47
2012
Framing Lumber Prices (per 1000 board feet)
Random Lengths Composite Price
CME Futures Price
1.2
May 4
329
291
1.9
1.7
April 6
296
267
Third Quarter
2.5
1.9
Mar 23
301
255
Fourth Quarter
2.3
1.6
Feb 24
284
266.9
Wisconsin Homeowner Vacancy Rates
2011
2010
First Quarter
1.8
Second Quarter
Source: NAHB
Source: US Census Bureau
2011
68.5%
2010
71%
2009
70.4%
Source: US Census Bureau
Northland Area Builders Association, 29148 Mail Road, Danbury, WI 54830 Tel: 715-259-3486 | Fax: 888-825-8073 Email: naba@centurytel.net | Online: www.northlandareabuilders.com
2012 Terms on Mortgages
Fixed rate 30 year conventional
Effective Rate (contract interest rate plus fees and charges)
Share of total market
Fixed rate 15 year conventional
Effective Rate (contract interest rate plus fees and charges)
Share of total market
March
4.16
56.2
3.58
12.7
February
4.51
64.3
4.5
2.2
January
4.55
66.5
4.40
1.8
Source: Federal Housing Finance Agency
Wisconsin tax revenues provided by home construction in 2005:
$265M
Wisconsin tax revenues provided by home construction in 2010:
$47M
STATE AND LOCAL TAXES LOST DUE TO HOUSING SLUMP:
Northland Area Builders Association, 29148 Mail Road, Danbury, WI 54830 Tel: 715-259-3486 | Fax: 888-825-8073 Email: naba@centurytel.net | Online: www.northlandareabuilders.com
$218 M
Nationally Speaking - Construction Self Employment Rates on the Rise Construction is known for employing a relatively high share of self employed workers. In fact, according to the 2010 American Community Survey (ACS), the construction sector registers the second highest share of self-employed among all industries, more than 26 percent of the employed labor force, i.e. more than one in four construction workers are self employed. Only agriculture has a higher share of self-employed, close to 34 percent, while a national average for all industries stands at 10 percent. It has always been common for some builders and remodelers to maintain relatively small payrolls and rely on subcontractors for a large share of the construction work. Interestingly, self-employment rates in the construction industry started to rise during the housing downturn and increased from 24 percent in 2006 to 26 percent in 2010. At the same time a national self-employment rate fell from 11 to 10 percent, and self employment in agriculture declined from 41 to 34 percent. Moreover, states known to have been hit hardest by the housing downturn – Florida, California, Nevada, and Arizona – registered some of the highest jumps in the construction self-employment rates. According to the ACS, the share of self-employed construction workers rose in Arizona from 16 to 21
percent and in Florida from less than 24 to 29 percent. Similarly, the share of self-employed construction workers increased by more than 4 percent in Nevada and almost 4 percent in California. It is likely that during the downturn builders and remodelers who were no longer able to maintain a steady work flow may have tried to manage costs by eliminating payroll positions and joining the ranks of the self-employed. It is also possible that some construction employees laid off during the downturn were able to stay in the industry by striking out on their own. The 2010 ACS data also show that five New England states have the highest shares of self employed construction workers. Maine, Vermont, New Hampshire register shares in excess of 40 percent – 43.1 percent, 41.1 percent, 40.3 percent, respectively – well above a national average. Connecticut and Rhode Island follow with 38.5 and 36.9 percent. Montana registers the sixth highest construction self employment rate in the nation, 34.9 percent, i.e. more than one in three construction workers in Montana are self-employed. Interestingly, Maine, Vermont, New Hampshire and Montana also stand out for having relatively high shares of residential construction workers in their state employed labor force.
Lumber Prices Moving Higher A mill fire in British Columbia sent lumber prices higher, adding to a number of supply side developments that moved the Random Lengths Framing Lumber Composite Price (FLCP) to $316. This price, if maintained, would trigger provisions in the US-Canadian Softwood Lumber Agreement (SLA) reducing tariffs on imports of Canadian lumber. An average price above the $315 limit for the period from April 20 to May 11 would result in reduced tariffs for the month of June. The mill fire, the second this year, coupled with already lean inventories helped push up the FLCP which has climbed steadily from a low of $252 in early November 2011. But the fire, the result of wood dust from the harvesting of beetle killed timber, also renewed focus on the longer term supply implications of the bug kill. One study estimates the British Columbia Interior timber supply could be reduced by one third over the next 20 years. On the demand side, a slow but improving US housing recovery, combined with slower but still strong growth in China will keep upward pressure on lumber prices. But some downward pressure on lumber prices, in addition to the possible tariff reductions, could come from Russia’s entry into the World Trade Organization. Membership is expected to increase competitiveness through reduced tariffs on Russian lumber exports, increasing exports to China and European markets. Theoretically, this would ease price pressures in the US market, but procedural issues of implementation could delay this effect. Northland Area Builders Association, 29148 Mail Road, Danbury, WI 54830 Tel: 715-259-3486 | Fax: 888-825-8073 Email: naba@centurytel.net | Online: www.northlandareabuilders.com