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Periodically, the National Association of Home Builders will provide an update to the average time to complete residential construction projects. Over the years, a variety of sources have told us HVAC equipment is installed towards the end of these projects. If that is the case, then the conclusions from NAHB would be a useful basis to forecast equipment demand for new construction [RNC]. In 2018, it was roughly seven months from start to completion for single family homes. There is some variation for region and builder, but this number is very similar to what has been reported in prior years. The lines above are an attempt to confirm this conclusion. The green line represents completions that have increased by 36% over the past four years, or 8% annual growth, and the orange line is the permits from seven months prior. The lines appear to confirm the NAHB article and I reviewed permits from five to nine months for the best fit. The indication is that single unit residential completions will decline by 5% to 825K by this spring. RNC equipment demand will follow. |
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The back-of-envelope approach to estimating equipment demand for residential new construction is to use the latest annual rate of permits for new residential units. There is currently 1.3 million residential unit permits outstanding for the twelve months through August 2019. That is a decline of 2% over the past year. 36.6% of those permits are part of multi-units that take longer than a year to complete. The completion rate peaked near the rate of 370K annual units during the spring of 2018 and has faded to a 340K-345K pace. It is not unusual for permit enthusiasm to peak at the same time as construction activity. With completions flat/down for 18 months, it appears likely more than 100K of those multi-unit permits will not reach completion. The back-of-envelope calculation for RNC equipment demand needs an extra level of discounting. The quarterly HARDInomics is released at the beginning of each quarter. The quarterly includes individual reports on each of our seven economic regions with specific analysis on each individual state, including housing permits. We have plugged in the 7 month and 16 month construction timelines to the single and multi-unit permit trends per state for an estimate of RNC equipment demand per state over the next twelve months. The results capture the impact of the timing of permits and are very interesting. We are pleased with this additional perspective and will endeavor to refine further for the January quarterly. Contact Brian Loftus at bloftus@hardinet.org for more information. |
