September Residential Spending Up 1.8%, But Single-Family Spending Down 2.6%

Residential construction spending showed some life in September, but it was all in multifamily construction and improvements spending.

The U.S. Census Bureau released September construction spending data today. Total nominal construction spending was at a seasonally adjusted annual rate (SAAR) of $801.7 billion, up 0.5% from the revised August estimate of $797.5 billion, and 10.4% below the year earlier reading of $894.8 billion. During the first nine months of this year on a not seasonally adjusted (NSA) basis, total construction spending amounted to $612.6 billion, 11.2% below the $689.9 billion for the same period in 2009.

Spending on private construction was $482.0 billion SAAR, essentially flat from August’s $481.9 billion. Year-to-date, it was down 15.2% to $382.2 billion NSA from $450.7 billion for the same period a year ago.

Private residential construction was at a seasonally adjusted annual rate of $231.7 billion, 1.8% above August’s $227.7 billion, while September’s year-to-date edged up 0.4% to $184.8 billion from $184.0 billion for the same period in 2009.

Single-family construction, showing the effects of the drop off in building following the expiration of the home buyer tax credit and consumer uncertainty about the economy, fell 2.6% from August to $107.7 billion, its fifth consecutive monthly decline. However, on a year-to-date basis, it is up 11.3% from a year earlier, to $86.0 billion. If single-family starts, which were up in the last two months, continue to rise as NAHB forecasts, single-family construction spending will show a rebound within a few months. However, access to credit for both buyers (availability of mortgages) and builders (AD&C credit) will be key to determining how strong the rebound in single-family construction is.

Multifamily construction, which has shown improvement over the last few months, rose 3.3% in September to $12.9 billion. However, the severity of the downturn in multifamily construction in the last two years is evidenced by year-to-date spending plummeting 55.0% to $10.5 billion from $23.3 billion for the same period in 2009. Weak demand for condos and high rental vacancy rates, which translated into miniscule rent increases, combined with a harsh financing environment to slow multifamily construction significantly. Now the financing environment seems to be slowly improving, allowing some new projects to go forward. The three-month moving average for multifamily housing starts has been generally rising throughout the course of this year, which is now pushing multifamily construction spending upward, albeit from a low level.

Improvements, which exclude maintenance expenditures and improvement expenditures on rental, vacant, and seasonal properties, rose following four months of decline. September spending on improvements increased 6.2% to $111.2 billion from August’s $104.7 billion. It was also up 5.9% to $88.3 billion on a year-to-date basis from the same period a year earlier.



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