Builders in U.S. Construct More Residences Fewer Commercial Buildings

October 04, 2012 / Russell Legato, Residential Property Analyst

U.S. builders spent more money to put up private residences in August. Conversely, less was spent on commercial real estate and public government projects. All construction saw a decrease in August of 0.7 percent as compared to July. The decline followed one in July as compared to June. Therefore, in spite of housing construction increasing its spending, the totality of construction projects decreased in spending.

Construction spending showed an annual rate of $834.4 billion, when adjusted seasonally. That follows a 12-year low that existed in February of 2011. The fact that it was only 12 percent higher than that record low made it only half of what is called a healthy amount.

In August, spending for single-family residences increased for the fifth month. The 0.9 percent increase sent residential spending up almost 18 percent higher than the previous year. The amount spent on building apartments went up for the tenth consecutive time.

The fact that the housing recovery is moving faster is extremely good news. However, spending on office buildings and other commercial construction projects decreased, which is the upsetting news. It is 0.8 percent less than it was in 2011 at this time. The annual rate was $288.7 billion. Government construction dropped to a seasonally-adjusted $274.9 billion, which is 3.5 percent lower than the previous year.

The National Assoc. of Home Builders states that every house that is constructed equals three jobs lasting for a year. This results in $90,000 tax revenue that is generated. One factor that increases new residential construction is the continuing lowest mortgage rates ever.

The housing market success is in stark contrast to the lack of success in the general economy. Wages are not increasing and high unemployment is not going down. Businesses are not doing much investing and neither is manufacturing.

According to the Federal Reserve, they will attempt to lower mortgage rates even further in an attempt to grow the economy. They announced a spending plan that will use $40 billion per month in purchasing mortgage-backed securities. They are doing so to attempt to improve the job market. A strengthening of the housing market will have the lateral effect of strengthening the general economy because a higher price on homes compels people to spend more money on other items.

As of today, listing prices on existing homes is increasing after a five-year slump. Hopefully, the health of the general economic picture will improve along with those prices.

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