Recovery Propels a Surge in Home Building

July 10, 2012 / Russell Legato, Residential Property Analyst

The current home building rush is indicative of a recovering economy. Spending in the construction industry in the U.S. has gone up significantly in the last five months. In April it rose 0.6 percent and it went up in May, by 0.9 percent. The Commerce Department reports it as the largest increase percentage-wise since December of 2011. May’s increase raised it to an annual rate, figuring in seasonal adjustment, of $830 billion.

Recovery Propels a Surge in Home Building

In February 2011, there was a 12-year low. Now the $830 billion spent is elevated by 11.3 percent above that low.  It is still no more than half of what it should be to be called a healthy economy. On the favorable side, residential construction increased to $261.3 billion, which is a three percent rise.

It is now the third month in succession that spending on nonresidential construction projects went up. In May it reached $299.1 billion (annual rate). This spending was on hotels, office buildings and shopping centers.

Spending on government construction projects went down 0.4 to $269.6 billion (annual rate). It had not been at a level that low since 2006, in November. State and local spending was at the annual rate of $242.6 billion. Federal spending on construction increased 5.6 percent to the rate of 427 billion.

All data is pointing to a gradual improvement after five years of slow. In May, more single family homes were started. More building permits were issued for constructing homes and apartments. Closings increased for new and existing homes compared to May of 2011. More contracts were signed than in 2010 and 2011. In a lot of real estate markets, listings are showing elevated prices. In the meantime, mortgage rates remain at an unprecedented low.

The supply of newly built houses is low and that causes prices to increase. In April, there were 144,000 new homes offered for sale. In May it went up to 145,000. In April, the supply had hit the lowest level since 1963.

Builders are able to charge more as there is increased competition. That can be the reason builders are planning to put up an increased number of apartments and houses in the next year. Economists say the market is not close to full health. That may be related to the sluggish job market. The unemployment rate rose in May. It was 8.2 percent. That was an increase over April, which was 8.1 percent.

Economic growth was at 1.9 % (annual rate) for the first quarter. The statisticians have not announced how much the growth slowed in the second quarter of 2012.

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