With Hanley Wood’s Multi-Family Executive Leadership Summit just a month away, this week we take a look at how multi-family building activity has changed over the past year.  According to Census data, multi-family construction is up noticeably as a percentage of total activity compared to the same period last year.  Multi-family housing starts of 5+ units accounted for only 13.5% of total housing starts in December 2009 but increased to a figure of 20.4% in December 2010.  Furthermore, building permits which are indicators of future construction activity also points towards increased multi-family construction activity in the months ahead.  Multi-family building permits for 5+ units accounted for 21.3% of total permit activity in December 2009 but have jumped to 27.1% in December 2010.

Based upon the overall decrease in closing transactions of new attached homes, it’s clear the increase in multi-family construction activity is due to growth in apartments and other rentals, and not for-sale properties.   In our data feature this week, courtesy of Housing IntelligencePro, we consider various markets that had the highest concentration of attached new home closings as a percentage of total closings in 2010.  Due to the scarcity of developable land, density in these housing markets is much higher.  San Jose, California had the largest portion of attached new home closings as a percent of the overall market in 2010.  Almost 78% of all new home closings that took place last year were in the attached product category.  However, that number is down slightly from the 81% the region posted in 2009.  Our top-5 is rounded out by Los Angeles, Baltimore, Chicago, and New York.  All of these areas have a smaller attached share of closings compared to 2009.  Markets needed to tally at least 500 new home closings in 2010 to be included in the list.  Nationwide, the average is down from 20% to 18%, further reinforcing the notion of rental market growth and complementing the harsh realities of foreclosure rates and deliquencies.

In broader economic news, total non-farm payrolls recorded a disappointing gain in January.  Employment data released today showed that the economy added just 36,000 non-farm payrolls on a seasonally-adjusted basis which is far less than most economics were expecting.  Severe weather conditions throughout much of the U.S. were cited as one of the causes behind the weak job growth in January.  To make things even more complex, the unemployment rate actually dropped significantly for the second straight month in spite of weaker job growth.  The U.S. unemployment rate fell to 9.0% in January which is the lowest it has been since April 2009.  Unfortunately, the size of the drop is primarily due to a decrease in the size of the labor force participation rate, and only slightly due to more Americans being considered employed.

Geopolitical unrest in Egypt stirred up concerns at the end of last week but has not done much to interfere with the rebound in equities this week.  The Dow Jones Industrial Average finally closed above the key psychological 12,000 level this week and is poised to end the week above that key level despite the dismal January employment report today.  Based on early afternoon trading, the DJIA is on track to end trading today at its highest levels since June 19, 2008.  Signals continue to point towards a slowly improving economy with strong corporate earnings, steady private sector job growth, and bull market trends in the stock market.

The Economy
Total non-farm U.S. payrolls increased again in January but the gain was far less than anticipated.  The economy added just 36,000 non-farm payrolls on a seasonally-adjusted basis.  Most economists were expecting the economy to add well over 100,000 jobs in January.  This was the fourth consecutive month that the economy has added jobs.  Payroll growth in December and November were revised upward by another 40,000 jobs which is a positive sign.  Private-sector service industries only reported an increase of 18,000 payrolls in January which is far less than the 128,000 gain in December.  This is the second straight month that the ADP private-sector jobs report, which is released just days before the government’s employment report, posted impressive gains only to be met with a lackluster government report days later.  Construction payrolls declined by 32,000 in January which most are attributing to unfavorable weather conditions.

Despite weaker-than-expected gains in employment, the U.S. unemployment rate improved noticably for the second consecutive month in January.  The unemployment rate fell to 9.0% in January from 9.4% in December.  The unemployment rate has fallen significantly in the past two months after reaching 9.8% in just November.  This is the lowest the unemployment rate in the U.S. has been since April 2009.  A reduction in the labor force along with a drop in the number of unemployed and an increase in the number of persons employed attributed to the drop in the unemployment rate.

The levels of underemployment which includes workers that are forced to work part-time because of the lack of jobs fell to 16.1% in January from 16.7% in December.  This figure is also at its lowest levels since April 2009.

Personal incomes for the United States in December increased 0.4% from the previous month. This is the third straight monthly increase for personal incomes.  Personal incomes are up 3.8% from December of last year.  Personal incomes have now recorded 13 straight months of year-over-year gains.

The PCE price index, which is a leading gauge for inflation, increased 0.3% from the previous month. The PCE price index excluding food and energy remained flat from the previous month.

Housing Market
The National Association of Realtors’ Pending Home Sales Index increased again in December.  The index increased 2% to a reading of 93.7 in December compared to a downwardly revised figure of 91.9 in November.  The index has recorded increases in five out of the past six months.

National average mortgage rates increased slightly from the previous week to 4.81% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on February 4th.  This is the third straight week that rates have increased and the highest they have been since the end of 2010.  However, the average rate on a 30-year fixed mortgage has now averaged under 5.0% for 39 straight weeks.

In the week ending January 28th, the MBA’s seasonally-adjusted purchase index rebounded 9.52% from the previous week but was still down 20.65% compared to the same time last year.  This is the first increase for the purchase index in the past five weeks.

For market-level data and analysis please visit our website at http://www.hwmarketintelligence.com.  For more detailed information on the indicators discussed in this key indicator alert, please visit the following links: