The BuildZoom and Urban Economics Lab Index: 2 Q 2015

by Jackson Cookson, BuildZoom

• Remodeling of existing homes has fully recovered since the housing bust, and is 2.8% above its 2005 level. In contrast, new home construction is recovering gradually and remains 57.0% below its 2005 level.

• However, year-over-year, residential new construction increased by 18.7%, while residential remodeling remained at the same level as a year ago.
• The BuildZoom & Urban Economics Lab Index has added 3 new metro-level indexes: New York, Los Angeles and Las Vegas.
• The New York and San Jose metro areas stand out for having relatively strong recoveries of both new home construction and existing home remodeling, both of which are well above the national average.

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National Indices for New Home Construction and Existing Home Remodeling

(Seasonally adjusted)

Metropolitan Area Indices

The following tables and graphs present seasonally-adjusted indices of an initial selection of metropolitan areas.

Metropolitan Area Indices of Permitting for New Home Construction

Metropolitan Area of Permitting for Existing Home Remodeling

What is the BuildZoom & Urban Economics Lab Index and why is remodeling important?

The remodeling of existing homes is an indicator of economic health whose importance is on par with new home construction. The size of the remodeling market is about $300 billion a year, not far from the $340 billion value of residential construction put in place last year.1 Unlike new construction, which captures the outlook of homebuilders, remodeling more directly captures consumer confidence. Moreover, new construction paints a picture of the economy that is skewed towards conditions in high-growth metropolitan areas – and on their outermost fringe at that – whereas remodeling reflects the state of the economy across a more evenly distributed geography, which better represents the nation as a whole.

The BuildZoom & Urban Economics Lab index is a joint endeavor of BuildZoom and the Urban Economics Laboratory of the Center for Real Estate at MIT. The set of indices leverages BuildZoom’s growing repository of building permit data to track residential permitting activity, including the construction of new homes and the remodeling of existing homes, and was developed jointly with Professor Albert Saiz of the Center for Real Estate at MIT.

Methodology

The BuildZoom & Urban Economics Lab index leverages BuildZoom’s repository of building permit data using a simple additive chaining method, developed and assessed in collaboration with Professor Albert Saiz (MIT). The performance of the method was assessed using a Monte Carlo simulation study, and a comprehensive account of the method and its assessment is available in a supporting technical document.

The national BuildZoom & Urban Economics Lab index of permitting for new homes is highly consistent with the corresponding numbers of permitted new homes published by the Census Bureau.2 The following graph compares the two (before adjusting for seasonality).

The BuildZoom & Urban Economics Lab index complements residential building permit statistics published by the Census Bureau. The Census’ Building Permits Survey considers only new homes, not existing homes. In addition, whereas the Census figures are obtained from a regular questionnaire asking local governments how many building permits were issued (Form C-404), the BuildZoom & Urban Economics Lab index is compiled from the ground up, based on individual building permit records.

Transparency

BuildZoom and its partners at MIT are firmly committed to transparency of data and methods. The building permit data repository can be browsed online for free, the indices and their components are available for download, and the method used to generate the index is explained in detail in a supporting technical document. Neither the data nor the methods are perfect, and we openly invite users to inspect the resources provided and alert us to what they find.

Notes:

1. The remodeling figure is drawn from Figure 1 of the report entitled “Emerging Trends in the Remodeling Market,” published by the Joint Center for Housing Studies at Harvard University in January 2015. The figure for residential construction put in place is the average annualized monthly value drawn from the Census Bureau’s C-30 series.
2. A small but systematic discrepancy between the index and the Census figures emerges because the former corresponds to building permit counts whereas the latter corresponds to numbers of housing units permitted. This is particularly noticeable in the context of the recent rise in the share of new construction that is multi-family. For additional details, see technical document.