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Construction Spending and The Real Estate Market

ENDVEST Sep 11, 2015

Construction spending in the United States stagnated in June as private spending was the lowest in a year, but the small growth suggested the economy is still solid and stable.


According to the Commerce Department, construction spending increased 0.1%, the smallest increase since January.


May’s spending was adjusted higher to reflect a 1.8% increase, instead of the previously reported 0.8%. Economists forecasted construction expenditure to rise 0.6% this June. It’s not all bad news; construction spending had increased 12% year over year.


In June, private construction spending dropped 0.5%, the largest decrease since June 2014. This decrease in private spending restrained construction spending in general. Spending on private non-residential construction projects fell 1.3%, the largest drop since January 2013. Investment cutbacks in the energy sector (in response to the recent plummet in oil prices) has rocked spending on nonresidential structures.

Private residential construction rose 0.4% to its highest level since May 2008, showing gains in new developments and renovations.
Public construction spending increased 1.6% to its highest level since November 2010.

Local and state government projects soared 2.2% to its highest level since September 2010. Conversely, federal government spending dropped 4.7%, the largest fall since January. 

These results divide the real estate market, mainly among the residential, nonresidential, public, and private sectors. In the past, our blog has touched upon these differences, but this quarterly report quantifies this division. 

Private nonresidential fell while private residential spending increased–this speaks to upcoming and burgeoning markets. An increase in residential spending indicates that developers anticipate an increase in residential demand, which speaks to the ongoing strength of the housing market. 

Additionally, the decrease in oil prices has left investors looking for ways to cut back on spending to lessen the blow. Unfortunately, real estate must absorb a part of this weakness. 

Finally, the (unexpected) strength of local and state government projects speaks to the continued increase in infrastructure. As previously mentioned in our other articles, public-private partnerships (PPPs) will take center stage as more and more governments turn to their corporate allies for help, in exchange for profits. 

Construction of 432 Park Avenue, the tallest residential development in the Western Hemisphere. Construction has since been completed, with the building reaching 1400ft tall.