SPECIAL Focus APA – The Engineered Wood Association By Joe Elling, APA Market Research Director
APA market outlook for 2016 and beyond C
ONSTRUCTION OF new single-family homes in the first quarter of 2016 was up almost 5% from the pace of the fourth quarter of 2015 on a seasonally adjusted basis, running at a rate of 792,000 units. This marked the highest quarterly starts rate since the fourth quarter of 2007. In contrast, and coming as somewhat of a surprise, multifamily starts were down 10% from the fourth quarter, running at a seasonally adjusted annual rate of 341,000 units. Consequently, total housing starts were essentially unchanged from the fourth quarter of 2015 at a rate of 1.13 million units. Demand for new housing units is no longer a primary concern in thinking about the outlook for residential construction. Driven by healthy employment gains over the last three years, annual household growth in the U.S. is back to the 1.2 million level, according to Census Bureau estimates. Accounting for other factors that drive the need for new housing units, it appears that demand is back to the 1.5-1.6 million unit level. Despite the expectations coming into 2016 that the Federal Reserve would follow its December 2015 increase in the target range for the federal funds rate with four more increases over the course of 2016, it has yet to move. In addition, concerns have driven investors to seek haven in less risky investments, helping to keep long-term interest
26
n
Building Products Digest
n
July 2016
rates lower than early-2016 expectations. Therefore, the rate on a 30-year fixed-rate mortgage is expected to run below 4% for most, if not all, of 2016. This is good news for the single-family home market. The primary concern for the rest of 2016 and for the next several years is the ability of the supply-side forces to respond to the improvement in demand. Home builders report the lack of developed lots and skilled construction labor is severely constraining their ability to respond to the improvement in demand. It is difficult to get a good measure of the lot supply to support their claim. However, in a survey of home builders conducted by an industry consultant, it is clear that more demands imposed on builders by municipalities have added to the costs of lot development. It also appears that lending standards for land acquisition and development have not materially eased following the tightening that took place after the bursting of the real estate bubble. Compounding the problem is that municipalities have been slow to rebuild their staffs to support the permitting process for construction activity of any type, which is adding to the cost of construction, either in tying up capital or unpredictable delays. On the labor front, the unemployment rate in the construction industry is back to where it was during the height
Building-Products.com