Construction Spending Grows for the 11th Straight Month Thanks to Strong Residential Building
Construction spending increased by 0.4% in November, indicating a continued rise in this economic indicator for the eleventh consecutive month. Growth was expected to be stronger at 0.6%. Spending on single-family homes grew by 2.9% from October, with residential construction contributing to pushing the index upward.
Growth in Construction Spending in the United States
Construction spending in the United States rose in November, driven by an increase in residential building to meet the growing demand for housing stock spurred by high mortgage rates. The U.S. Census Bureau reported that construction spending in November increased by 0.4% compared to total spending in October, suggesting a continued rise in spending on materials, labor, engineering, and other construction-related expenses for 11 months. Economists surveyed by Dow Jones Newswires and The Wall Street Journal had expected construction spending to rise by 0.6%.
Growth in Spending on Single-Family Home Construction as Builders Seek to Boost Inventory
New residential construction increased by 1.1% from the total in October, contributing to the overall increase in spending. Spending on new single-family home construction surged by 2.9%. High mortgage rates have led to increased spending on housing construction, which has tightened housing supply and caused existing home sales to drop to a 13-year low. Jeffrey Roach, chief economist at LPL Financial, stated, “Investors should expect that builders will grow this year as the residential real estate market benefits from lower prices in the coming months. Given the construction activity, we anticipate that residential investment will contribute to economic growth in the fourth quarter.”
Decline in Mortgage Rates and Its Impact on Construction Spending
After mortgage rates reached their highest levels in over two decades in 2023, rates have begun to decline amid optimism that the Federal Reserve will start lowering interest rates in 2024. Mortgage rates have fallen below 7%. High mortgage rates have caused a “lock-in” effect on homeowners who secured lower rates before the increases and are now hesitant to sell their homes. Builders are working to add new inventory to the market, as the U.S. Census Bureau reported a 15% increase in housing starts in November.
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Source: https://www.investopedia.com/construction-spending-grows-for-11th-straight-month-8421304
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