Housing continues to boil, soon to simmer
By Daryl Delano -- Industrial Distribution, 5/1/1999
Last year was a record-breaking one for the residential construction market. And preliminary data for the first month of 1999 shows strong momentum carrying over into this year.Nevertheless, in the January data there was the slightest hint of the slowdown that is to come. If, and when, this predicted market pullback does materialize, however, the numbers being posted for starts and sales will remain impressive -- healthy by almost any standard of comparison, but short of the breathtaking levels that we saw throughout so much of 1998.
And what a year it was. Total housing starts were estimated at just short of 1.616 million units in 1998, a 9.6% gain from the very respectable 1997 level. Single-family starts accounted for most, but not all, of the gain. The number of single-family units started last year rose to 1.271 million homes, 12.1% better than in 1997. But multi-family starts increased as well, albeit more slowly; construction was begun on a total of 344,900 multi-family units during the year, 1.4% more than during 1997.
New single-family home sales reached a record level of 887,000 units during 1998, 10.3% above the 1997 level. The Midwest market was the most dynamic, as the number of new homes sold in this region during 1998 rose 17.1% above the 1997 level.
The number of existing single-family homes sold during 1998 -- 4.785 million units -- also set an all-time record. This was 13.5% more homes than were sold during 1997-- the previous all-time record year.
Construction spending numbers for the residential building sector paint the same pretty picture on our 1998 canvas. While new nonresidential construction spending was increasing by a modest 2.7% last year, and heavy construction work was eking out a gain of just 0.6%, spending for new single-and multi-family buildings was soaring by 13.2%.
Going forward, the question is not whether the housing market will cool from the white-hot pace of 1998 -- it will -- but by how much. On the surface, the housing start numbers for the first month of the new year suggest that market growth is continuing to accelerate, not cool. January 1999 starts were at a seasonally adjusted annualized rate of 1.804 million units -- 3.8% better than in December 1998, and 18.1% ahead of the January 1998 level. Some cooling! However, the regional numbers suggest that the composite national number may significantly overstate the strength of the market. The annualized starts pace actually declined between December and January in two regions. In addition, the annualized rate of new single-family home sales has declined for two consecutive months.
On the basis of these recent signs of incipient weakness (if you can call it that!) in the housing market, and on the simple premise that the market has to run out of steam some time, we're forecasting total starts of 1.536 million units this year and 1.497 million units next year. These numbers amount to declines of 5% and 2.5% respectively over 1999 and 2000 -- but few would argue that the resultant 1.497 million starts in the year 2000 are representative of anything but a still very healthy market.
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