- The combined residential/commercial remodeling and construction industry grew 9.3% from 2012 to 2013.
- Growth within the residential sector was more pronounced (10.5%) than the commercial sector (6.4%).
- We forecast that total commercial expenditures in 2014 will increase between 7-8%.
To better understand how the remodeling & construction industry performed in 2013, we compared the total number of building permits issued in 2013 with the previous two years.
Permits issued by year
Overall, total activity in 2013 grew 9.3%, from 2012 to 2013. As discussed several weeks back, building permits are a leading indicator for building expenditures however the length of the lead depends on whether the work is residential or commercial in nature.
Residential building permits increased by 10.5% from 2012 to 2013. This represents a significant jump in the annual growth compared to 2011 to 2012 (8.5%). For residential projects, permit issuance generally leads revenue recognition by a month. Therefore, the corresponding increase in expenditures can also be accounted for in 2013.
Looking at residential permits issued by month in 2013, we can see that the year-over-year gains were particularly pronounced from April through October.
Residential permits issued by month (not deseasonalized)
A look at the deseasonalized trend over the past five years, helps illustrate the increased volatility in 2013 (%RSD=7), compared to 2012 (%RSD=4) and 2011 (%RSD=5).
Residential permits issued by month (deseasonalized)
The total number of commercial building permits increased by 7.8% from 2012 to 2013, which represents a lower figure compared to the growth rate from 2011 to 2012 (13.3%).
Commercial permits issued by month (not deseasonalized)
Deseasonalizing the data reveals a similar increase in volatility in 2013 (%RSD=9) versus 2012 (%RSD=4) and 2011 (%RSD=6).
Commercial permits issued by month (deseasonalized)
A historical reveals a strong correlation (R=.54) between commercial permits issued (via BuildZ0om) and aggregate expenditures in commercial private construction (via the US Census) in the following year.
Commercial building permits issued (-1 year) versus aggregate expenditures
Based on this correlation, we project that commercial expenditures will hold steady through the first three quarters of 2014 before dipping in Q4.
Projected aggregate commercial expenditures in 2014
- Due to a the latency between permit issuance and revenue recognition in the residential sector (about 1 month), we have abstained from forecasting 2014 expenditures on residential remodeling and construction. The Harvard Joint Center for Housing Studies has found a strong correlation between present residential expenditures and past home sales, housing starts and bond yields. These findings are factored into their leading indicator of remodeling activity.
- Only the first three quarters of activity for 2012 and 2013 were analyzed in year-over-year comparisons for individual cities due to the latency associated with publicizing building permit data in some areas.