Construction MMI Falls Steeply With Housing Starts

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The monthly Construction MMI® registered a value of 83 in January, a sharp decrease of 7.8% from 90 in December.

Compare with 2014’s Construction MMI Charts!

The steep drop came from several different factors that are likely affecting construction metals spending and procurement, but a major driver of it is the unexpected slip in single-family home construction. Building ticked down 1.6% in November to a seasonally adjusted annual rate of 1.03 million homes and apartments, the Commerce Department reported just before the holidays.

This came after  a 5.4% decline in single-family housing starts, which fell to a seasonally adjusted annual rate of 677,000 units in November. Multifamily construction actually rose 6.7% to 351,000 units. Building permits also fell last month, down 5.2% to a seasonally adjusted annual rate of 1.035 million units in November.

Construction_Chart_January-2015_FNL

After strong October and September numbers many had expected a robust November. Some of the drop can be attributed to cold weather throughout the Northeast and Midwest, but the steepness and low numbers of housing starts across an entire region, the South, show that the market recovery is still very weak. All residential building fell 19.5% in the South, a region that’s not normally heavily affected by winter.

While the decline should not affect the ability of contractors and real estate companies to acquire construction funding, it does belie how weak the housing recovery still is. Money will continue to flow into real estate from across the capital markets, but LaSalle Investment Management warns investors that they should be increasingly concerned about getting  caught late in the cycle. LaSalle says that investors should anticipate the next cyclical downturn in a few years.

LaSalle’s report says that real estate is a strong investment opportunity today, but there are plenty of areas of uncertainty.

The Census Bureau reported on Friday that US construction spending came in at an annualized rate of $975 billion during November, a drop of only 0.3% compared with October. Private spending actually increased 0.3% for the month, but public spending more than offset that gain by falling 1.7%.

Residential construction was at an annualized rate of $352.7 billion in November, 0.9% t above October’s $349.6 billion. On the other hand, nonresidential construction posted an annualized rate of $345 billion in November, or 0.3% below October’s $346.1 billion.

Nonresidential had been holding the market steady for months when housing began to post better numbers in September and October. The step back this month shows that the strong recovery in housing starts, purchases and spending is just as far off as it was last summer and the housing recovery remains tepid.

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After rising the previous month, weekly US Midwest bar fuel surcharge prices dropped 19.9% to $0.40 per mile. Weekly US Rocky Mountain bar fuel surcharge prices fell 19.4% to $0.41 per mile after rising the previous month. Following a 16.6% decline, the weekly US Gulf Coast bar fuel surcharge reached $0.38 per mile. Following a 14.7% decline in price, Chinese H-beam steel finished the month at $448.06 per metric ton. A 10.5% drop over the past month left Chinese rebar at $452.90 per metric ton. Chinese aluminum bar prices dropped by 10.4% this month to $2,095 per metric ton. The price of European 1050 aluminum fell 4.4% to $2,985 per metric ton.

US shredded scrap prices inched up 1.8% to $334.00 per short ton.

The Chinese low price of 62% Australian iron ore fines held pat last month at $156.34 per dry metric ton.

The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

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