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By David F. Seiders
NAHB Chief Economist
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Housing Starts and Building Permits Fell in July
The decline occurred in both the single-family (down 2.3 percent) and multifamily sectors (-3.4 percent). Three out of the 4 census regions registered production declines between June and July, the exception being the Midwest which edged out a 0.7 percent increase. Building permits contracted for the 6th consecutive month in July to a 1.747 million pace.
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Housing Starts for July 2006 |
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DATE |
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LAST |
% Change |
Download Housing Starts |
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08/16/2006 |
1.795 M |
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1.841 M |
- 2.5% |
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Read the full report and download data for Housing Starts and Building Permits.
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Does Your Company Need to Know the Metro Starts Forecast for 2007?
 National Overview
As national residential construction continues to show evidence of cooling (June total housing starts were down 5.3 percent at a seasonally adjusted, annual rate from May, to 1.85 million from May’s 1.95 million starts), the outlook for different parts of the country varies. In general, the prospects for the South and West remain reasonably bright while the Northeast and the upper Midwest will struggle.
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Metro Forecast One Hundred for 2007
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Metropolitan Markets in All Four Regions (By Region and Division)
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Year-Over-Year Percentage Change in Total Housing Starts Ranked by 2005, 2006, and 2007.
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| Formerly hot markets like Miami and San Diego, characterized by rapidly escalating prices, feverish building, and speculation among home buyers, are now showing evidence of excess supply. The result is significantly reduced construction activity in 2006 and 2007 in our forecast for those metros.
For some southern metros, good employment prospects and population inflows translate into a healthy residential construction forecast. In North Carolina, the Charlotte, Durham, and Raleigh metros are forecast to increase total housing starts in both 2006 and 2007.
On the west coast, Seattle housing construction is also forecast to rise. This is due to expanding employment as the tech sector continues to recover and Boeing undertakes fulfilling large orders from China.
2006 promises to be comparable to 2005 on some fronts. Real GDP and employment are forecast to grow at the same rate as they did in 2005—3.5 percent and 1.5 percent, respectively. However, the long awaited slowdown in housing seems to have finally arrived. The outlook is for a cooling down of the housing market, not an out and out freeze. With both prices and interest rates up, total housing starts are projected to decline in 2006 and 2007.
 Please note: This information is available only to HousingEconomics.com subscribers.
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The Seiders' Report: A Housing Overview by NAHB’s Chief Economist
Highlights
 • “Benchmark” revisions to the national economic accounts have trimmed economic growth and raised core inflation in recent years, and the “advance” estimate for the second quarter of this year shows slippage of GDP growth to a below-trend pace.
• The benchmark revisions show a disturbing reduction in growth of capital spending by nonresidential businesses, and the advance estimate for the second quarter shows an absolute decline. Furthermore, the housing production component of GDP now shows a peak in the third quarter of last year and a sizeable decline through the second quarter of this year.
• The labor market has lost strength as GDP growth has slipped below trend. Growth of payroll employment has been weak for several months and the unemployment rate moved up in June from its cyclical low. Even so, growth of average hourly earnings has been picking up, threatening a pickup in core inflation.
• Key measures of core consumer price inflation have been accelerating in recent months, moving above the Federal Reserve’s implicit comfort zones. Even so, Chairman Bernanke sounded surprisingly sanguine about inflation prospects during recent testimony before Congress, and he also seemed inclined to discount the inflationary influence of a controversial housing component of the core inflation measures.
• Recent housing market indicators, including NAHB’s survey measures, suggest that home sales and housing production still are on a downward path. Housing is likely to exert a drag on economic growth for a few more quarters, despite heavy use of price and non-price incentives as well as strenuous marketing efforts by builders to bolster sales and limit cancellations.
• The Federal Reserve held monetary policy steady at the August 8 FOMC meeting, breaking a string of seventeen consecutive quarter-point rate hikes. The FOMC statement suggested that policy may hold steady for some time into the future, although the Fed stressed the need to keep inflationary pressures under close control.
• Long-term interest rates have subsided from their late-June highs in the face of news about a slowing economy and surprisingly friendly messages from the Fed about inflation prospects, and the outcome of the August 8 FOMC meeting was well received by bond and mortgage markets.
• Historical revisions and recent data have prompted some changes to NAHB’s forecasts for the economy, the housing sector and the interest rate structure over the balance of this year and in 2007. We’ve trimmed our projections of GDP growth, employment growth and housing market activity to some degree, although the economy still does not approach recession and a friendlier rate structure helps to keep housing activity at historically high levels.
• We continue to view the 2006-2007 slowdown as an inevitable mid-cycle correction that will pave the way for at least several more years of economic expansion and healthy trend-like housing m arket activity. Our first cut at 2008 will be presented in the September issue.
Please note: This information is available only to HousingEconomics.com subscribers. Download a free Sample.
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How Much is a Bathroom Worth?
 What happens to a new home’s market price if a builder decides to include an additional bathroom? NAHB has developed a model that can be used to estimate such price effects. The model, developed by applying statistical techniques to data from the American Housing Survey (AHS), has been updated several times over the years. From the beginning it has consistently shown that an added bathroom has one of the strongest impacts of any home feature on single family detached home values.
This is also true of the most recent version of the model, which incorporates recently released data from the 2005 AHS. Looking at the bottom-line results from this model, a half bath adds approximately 10 and a half percent to a home’s value, and a full bath adds approximately 20 percent. But the story is a bit more complicated, and it’s necessary to go into the model’s results in more detail to fully understand them. Certain caveats about interpreting results from statistical models in general must be considered. And the percentage increase in home value varies somewhat, depending on other characteristics of the home, especially the number of bedrooms.
Estimating Home Values
Economic theory, as well as plain common sense, suggests that the price of a house should be related to its characteristics. A home with a desirable amenity should, all else equal, sell for a higher price than one without the amenity. How much higher depends on demand for the amenity, the supply of homes possessing it, and the cost of retrofitting it in a home that lacks it. Given adequate data, it’s possible to estimate the implicit price for a particular feature—taking into account both how much it costs and how much people are willing to pay for it—controlling for other factors such as geographic location, neighborhood characteristics, and other features of the home.
Click here to read the full report. Available to the public as a courtesy of HousingEconomics.com
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Key Housing Data and Primary Indicators for the Housing Industry
Discover all of the key data and primary indicators for the housing industry in one easy-to-navigate location. Source data derived from housing indicators (by type and region), Producer Price Index, Inflation indicators, demographics, GDP, and employment indicators are compiled from the Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve Board, Office of Thrift Supervision, National Association of Realtors, Mortgage Bankers Association, Department of Housing and Urban Development, Coldwell-Banker, Freddie Mac, and other public and private agencies.
Housing Market Statistics offers 36 different tables, downloadable either as Excel or PDF files (updated weekly). Download Free Sample (Excel).
Print All Housing Market Statistics
Instant Online Access Now!
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Hone Your Projections: Building Permits & Employment Data by Metro Areas
 Building Permits and Employment data by States and Metropolitan Statistical Areas (MSAs), are available for download (Excel tables).
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Executive-Level Forecast Available for Download
"The information provided by HousingEconomics.com is invaluable. Specifically, the Executive-Level Forecasts have proven to be a tremendous resource for helping me plan strategies and tactics both nationally and locally. The site is easy to navigate and loaded with pertinent data and opinions that are both interesting and useful. "
Stuart Tyrie
Vice-President, National Builder Division
Wells Fargo
 HousingEconomics.com subscribers, download here the Executive Level Forecast (August 06)
Please note: This information is available only to HousingEconomics.com subscribers.
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Calendar: Data Releases for September 2006
 Mark your calendar for all of the housing industry key data and primary indicators for September 2006.
Click here to print the schedule of release dates for economic indicators. (PDF)
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USG Corporation Chicago
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State and Metro Forecasts are some of the favorites materials our subscribers look for. Including Starts Forecast, Excel tables of Total, Single-Family and Multifamily Housing Starts by Regions, States, and the Top 100 Metropolitan areas.
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