Weak Remodeling Activity Weighs on Residential Construction Spending

Total private residential construction spending increased 0.4% on a month-to-month basis during March 2013. After data revisions, first quarter nominal spending levels came in 2.3% lower than the final three months of 2012. With that said, private construction spending has bounced back by 33% since its cyclical low from nearly two years ago and has advanced more than 18% compared to March 2012.

Spending on new single-family housing notched its 21st month-to-month gain over the last 22 months, increasing 1.6% versus February, which itself was revised higher from 4.6% to 5.4% growth. On a year-over-year basis the new single-family category has expanded 38% and has managed to rise 78% above the cyclical low observed back in mid-2009. With the current NAHB forecast projecting growth of 26% and 28% for single family housing starts in 2013 and 2014, respectively, we expect spending activity to continue rising over the next two years.

construction spending

New multifamily construction spending registered a modest gain of 0.3% in March, but the initial estimate of a 2.2% drop for February was revised to a smaller decline of 1.4%. Despite these two lackluster months, the first-quarter average was a 12% improvement from the fourth quarter of 2012 and the nominal dollar value of spending has skyrocketed 111% in less than two years. The forecast calls for a modest decline in multifamily starts during the second quarter of 2013 after what was likely an unsustainably large increase during the first quarter (primarily in March). Multifamily starts are expected to increase in every quarter thereafter, albeit at a slower and steadier pace, which in turn will yield further growth in nominal spending levels.

While the other two categories improved, home improvement spending was a source of weakness for the residential construction sector. Remodeling expenditures have declined in each of the last five months, with the March 2013 estimate coming in at a drop of 1.4% compared to February. The 3-month moving average, which tends to smooth out the month-to-month volatility in reported home improvement spending, points to a noticeable dip in remodeling activity after a healthy surge between spring and fall of last year. The most recent forecast calls for remodeling activity to rise modestly over the remainder of the outlook period. However, this downward trend in spending data plus the latest edition of NAHB’s Remodeling Market Index point to some risk to projected home improvement activity over the near term.



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8 replies

  1. In our part of the country, things seem to be picking up. In my experience if you have a good reputation remodeling projects will always come your way. I am seeing more people opting to make home improvements rather than moving. My clientele seems to save for their projects rather than borrow.

  2. I am trying to identify the detail behind the chart enclosed in this report. Specifically, I am trying to identify renovation spending for 2013 YTD. Can you assist with information or identify another resource?

    As we are analyzing the market and our activity, there is significant information available on new housing, but remodeling has been harder to identify (other than quarterly reports).

    Thank you

    Cindy Ihrke
    Support Services Manager
    Truth Hardware
    Ph: 1.507.444.4467

    • Cindy —

      The data comes from the Census on a monthly basis. It is the Census construction spending report, which details single-family and multifamily spending. To get the remodeling total, you find the residual of total private residential spending minus single-family and multifamily. Hope that helps. From Jan thru May of 2013, total improvement spending is $29.3 billion nationally.

  3. I agree with Chad… more and ore people are avoiding borrowing for their expenses and some even tries to go cardless.

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