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As the post-recession recovery enters its fourth year, two recent milestones draw our attention - in April, permits for new home construction surpassed the 1-million-unit rate for the first time since 2008, and the homebuilder confidence index, an indicator of future growth, turned positive in June for the first time in six years. Economists are predicting greater gains for the residential market this year, as home prices, construction employment and foreclosure levels continue to improve.

Upbeat Homebuilder Confidence Index Sets Six-Year High

All three HMI components posted gains in June. The index gauging current sales conditions increased eight points to 56, while the index measuring expectations for future sales rose nine points to 61 - its highest level since March 2006. The index gauging traffic of prospective buyers rose seven points to 40.

Builder confidence in the market for new single-family residences reached a significant milestone in June, as the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) surged eight points to a reading of 52, according to an NAHB report released June 17.

"Builders are experiencing some relief in the headwinds that are holding back a more robust recovery," said NAHB chief economist David Crowe. "[The] report is consistent with our forecast for a 29 percent increase in total housing starts this year, which would mark the first time since 2007 that starts have topped the 1 million mark."

The eight-point jump in the index was the biggest one-month gain in more than a decade; the HMI recorded a similar eight-point increase between August and September in 2002. The index measures builder expectations on a scale where readings higher than 50 indicate more builders view conditions as good, rather than poor.

"This is the first time the HMI has been above 50 since April 2006," said NAHB Chairman Rick Judson. "Surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases."

New Home Construction, May

Annual rate, new housing starts, seasonally adjusted (SA)

Annual rate, new building permits (SA)

Housing starts change since May 2012 (SA)

Building permits change since May 2012 (SA)

Housing starts peak rate (millions), January 2006

Building permits peak rate (millions), September 2005

Permits to start building new homes in May were down 3.1 percent from a 1-million-unit pace April, reaching a seasonally adjusted annual rate of 974,000 units. The decline originated in the multi-family unit sector, which is prone to unpredictable shifts, while single-family construction permits reached a five-year high. The monthly pace for groundbreaking on new homes in May rose to 914,000 units, a 6.8 percent increase that was also boosted by single-family home starts, the largest segment of the market, which rose 0.3 percent to a 599,000-unit pace. -Credit: U.S. Commerce Department

May Construction Unemployment Sets Another Five-Year Low

Construction employment increased by 3.4 percent year-over-year in May, producing 189,000 more jobs over 12 months and a total of 5,804,000 jobs across all trades. The unemployment rate for workers who last worked in construction dropped to 10.8 percent from 14.2 percent in May 2012 (not seasonally adjusted), and the number of unemployed construction workers shrank over the year by 259,000 to 891,000.

Construction jobs increased by about 7,000 in May, pushing the industry's unemployment rate down to the lowest May level in five years.

"Both residential and nonresidential construction have been adding workers at roughly double the rate of the overall economy in the past year," said Ken Simonson, the Associated General Contractors of America's chief economist. "At the same time, formerly unemployed construction workers are finding jobs in other sectors, retiring or going back to school. These conditions may lead abruptly to worker shortages in parts of the industry."

The decline follows another five-year low in April, when unemployment fell to 13.2 percent, the lowest since April 2008. (The industry unemployment rate is not seasonally adjusted and can be compared to the same month in past years, but not month to month.)

PCA Downgrades 2013 Cement Forecast

The Portland Cement Association (PCA) has moderated its predictions for cement usage in 2013, in light of sequestration cuts and the state of the construction industry. While 2012's gains in cement consumption were the strongest in seven years, the forecast presented at the PCA's spring board meeting anticipated a 6.2 percent annual increase in 2013, a reduction from the 8.1 percent growth predicted in the group's January report.

The trade group credited the downgrade in part to the effect of government budget cuts on the larger economy. PCA economist Ed Sullivan expects most of this year's market recovery to occur in the second half of 2013, as state deficits shrink and construction growth increases.

All sectors of construction are predicted to grow through 2014-2015, which is expected to create large gains in cement consumption. PCA economists are predicting consumption levels will reach 120 million metric tons by 2017, a 53 percent increase over the 78.5 million-ton rate set in 2012. (The level of construction activity and the prevailing cement intensity, or how much cement is used per construction project, dictates cement consumption levels.)

This Month In Numbers

Existing home sales annual rate (millions) in May. The pace increased 4.2 percent from April's 4.97-million-unit rate, and is 12.9 percent above the 4.59-million-unit pace in May 2012. The existing home sales rate has stayed above year-over-year levels for 23 consecutive months. -Credit: National Association of Realtors

Number of metro areas on the Improving Markets Index in June, a net gain of five markets since May. The index identifies areas that have improved for at least six consecutive months from their lows in housing permits, employment and home prices. -Credit: National Association of Home Builders/First American

Amount of loans, leases and lines of credit (billions) borrowed by businesses for new equipment in May. Borrowing levels have increased 21 percent since May 2012, but did not change May over April. Credit approvals increased to 78.8 percent from 77.2 percent in April. -Credit: Equipment Leasing and Finance Assn.

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November 19, 2019, 2:54 am PDT

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