Full text of Real Estate Research : Construction Spending Update

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Search



A

A

A

REAL ESTATE RESEARCH

ABOUT

May 4, 2016

REAL ESTATE RESEARCH
SEARCH

Real Estate Research provided
analysis of topical research and
current issues in the fields of housing

Construction Spending Update

and real estate economics. Authors
for the blog included the Atlanta Fed's

Looking at the latest construction spending report can be an informative
exercise, despite the fact that the data lag other releases, because it bundles

RECENT POSTS

Jessica Dill, Kristopher Gerardi, Carl
Hudson, and analysts, as well as the

together various measures of construction activity for one comprehensive look.
The latest report, released on May 2, revealed continued growth in construction

Assessing the Size and Spread of
Vulnerable Renter Households in

Boston Fed's Christopher Foote and
Paul Willen.

spending. Private construction spending increased 8.5 percent on a year-overyear basis. The breakdown of growth by segment shown in chart 1 reveals that

the Southeast
What's Being Done to Help Renters

In December 2020, content from Real
Estate Research became part of

private residential (the sum of new single-family, multifamily, and residential
improvements) and private nonresidential spending contributed almost equally to

during the Pandemic?
An Update on Forbearance Trends

this increase (4.0 and 4.5 percent respectively).i

Examining the Effects of COVID-19
on the Southeast Housing Market

Policy Hub. Future articles will be
released in Policy Hub: Macroblog.

Search

Southeast Housing Market and
COVID-19

Disclaimer

Update on Lot Availability and
Construction Lending

Email Me
Subscribe by E-mail

Tax Reform's Effect on Low-Income
Housing

Subscribe by RSS

Housing Headwinds
Where Is the Housing Sector

Other Fed Websites
Comment Standards:
Comments are moderated and will
not appear until the moderator has
approved them.

Headed?
Did Harvey Influence the Housing
Market?

Please submit appropriate
comments. Inappropriate comments
include content that is abusive,
harassing, or threatening; obscene,
vulgar, or profane; an attack of a
personal nature; or overtly political.

CATEGORIES
Affordable housing goals
Credit conditions
Expansion of mortgage credit
Federal Housing Authority
Financial crisis

In addition, no off-topic remarks or
spam is permitted.

Foreclosure contagion
Foreclosure laws
Governmentsponsored enterprises
GSE

Growth in private residential and nonresidential spending from the year-earlier
level has persisted since July 2011, but how does the level of spending compare
to the previous cycle? The seasonally adjusted annual rate of private
nonresidential spending has rebounded to a level just 1.8 percent below its
previous peak. Private residential construction spending, on the other hand,
remains 35.8 percent below its previous peak. With that said, after zooming out
to look at spending over the entire horizon of the series and adjusting for inflation
(see chart 2), it doesn't seem particularly wise to judge the health of construction
spending relative to the past peak. In hindsight, the last peak was clearly an
aberration, especially for residential spending.

Homebuyer tax credit
Homeownership
House price indexes
Household formations
Housing boom
Housing crisis
Housing demand
Housing prices
Income segregation
Individual Development Account
Loan modifications
Monetary policy
Mortgage crisis
Mortgage default
Mortgage interest tax deduction
Mortgage supply
Multifamily housing
Negative equity
Positive demand shock
Positive externalities
Rental homes
Securitization
Subprime MBS
Subprime mortgages
Supply elasticity
Uncategorized
Upward mobility
Urban growth

Using this longer-running and inflation-adjusted time series to help put current
spending in context, it's hard not to notice that the level of private nonresidential
spending has surpassed the level seen in earlier peaks (the most recent peak
excluded) while private residential spending now looks to be about on par with
levels seen in earlier peaks. This surface-level comparison is a bit short-sighted,
as this is not a mean-reverting time series. An upward trend in aggregate real
construction spending seems perfectly reasonable as the population and
economy grow over time.
Shifting focus to the dashed trend lines in chart 2, we see that spending on
residential construction has yet to catch up with trend but is much closer than
when compared with the previous peak, while spending on nonresidential
construction is at a level that exceeds its trend.
Takeaways
Two high-level questions emerge after reviewing the latest construction spending
data. First, does construction spending really provide a comprehensive look at
construction? The construction spending data could confound the underlying
trend because it reflects activity, costs, and timing of payment (for some
categories). Data on activity (that is, square feet and units under construction) for
all subcategories are not available, but charts 3 and 4 (below) provide some
indication for the trend in residential and some categories of nonresidential
construction activity.

The construction of single-family and multifamily units as well as the square
footage under way for warehouse and office properties have all resumed upward
trajectories. Because these measures of construction activity tell a consistent
story with the spending data, they provide some reassurance that the costs
aren't the primary driver of the growth in construction spending.
Second, does the recovery in real estate still have legs? This one is hard to say
for certain but, taking the construction spending and construction activity data
together, it seems fairly likely that there is still room for growth.
Jessica Dill, economic policy analysis specialist in the Atlanta Fed's
research department
_______________________________________
i

Private nonresidential spending is comprised of lodging, office, commercial,

health care, educational, religious, amusement and recreation, transportation,
communication, power, and manufacturing structures.
May 4, 2016 in Affordable housing goals | Permalink

Frequently Asked Questions
GDPNow

Careers
Contact Us

Inflation Project
Jobs Calculator
Market Probability Tracker
Speakers Bureau
Teacher Workshops

A to Z index
Follow the Fed
Publications
Disclaimer & Terms of Use
Online Privacy Policy

Wage Growth Tracker

Data Privacy Policy
Home

1000 Peachtree Street N.E.
Atlanta, Georgia 30309
404-498-8500

Careers