Private Residential Construction Spending Still on the Rise

Decreasing mortgage rates along with solid growth of spending on single-family construction and remodeling have kept the private residential construction up for the sixth consecutive month. According to the National Association of Home Builders, the Census Constructions Spending data reveal a 1.4% increase to a seasonally adjusted annual rate of $540.7 billion for total private residential construction spending this last December.

The National Association of Home Builders provides a monthly estimate of the total dollar value of construction work done called The Value of Construction Put in Place Survey (VIP). On the first day of each month data collection and estimation activities begin for the month. The data that is recorded includes the cost of labor and materials, cost of architectural and engineering work, overhead costs,

interest and taxes paid during construction, and contractor’s profits. The survey is based on construction work that is done each month on improvements to existing structures or new structures for private and public sectors.

The growth in spending on single-family construction and remodeling has been great for the housing industry. Single-family spending was up 2.7% in December 2019 at an annual pace of $289.3 billion. This was 5.2% higher compared to the figures reported in December 2018. The figures included in the private residential improvements were based on spending on remodeling, major replacements, and additions to owner-occupied housing units. In December the figures rose to a seasonally adjusted annual rate of $193.7 billion.

In the second half of 2019, as seen in the graph, there has been solid growth in single-family construction and home improvement. Also shown is new multifamily construction spending which slowed down since last summer but did see solid growth from 2010 to 2016 and a growth spurt from late 2018 to early 2019.

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A 4.1% Rise From November 2018 In Construction Spending

The Census Bureau reported the November 2019 U.S. spending rate for U.S. construction is 4.1% above 2018’s rate for last November. According to the report construction spending amounted to a seasonally adjusted annual rate of $1.324 trillion.

Out of the total construction spending, spending on private construction was 1.6% above November

2018’s and is at a seasonally adjusted annual rate of $985.5 billion. Residential construction spending came in at a seasonally adjusted annual rate of $536.1 in November making it 2.7% up from a year ago.

“Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” NAHB Chairman Greg Ugalde said. “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.

Homebuilders are confident in the current housing market. The National Association of Home Builders and Wells Fargo suggest the sentiment levels are at 70 points making the rate the second-highest level in 2019. The points are 10 points higher than reported this time in 2018.

The positive housing market is expected to continue in 2020. This forecast is based upon the number of applications for new building permits which were at the highest level in November 2019 than they have been in a decade.

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Job Growth and Lower Mortgage Rates Boosting Single-Family Housing

This year the housing industry has been on an uphill victory. According to NAHB Chief Economist Robert Dietz newsletter, Eye on the Economy, there are two main factors that are helping the single-family housing sector.

Job growth has been on a positive path in 2019. It is reported that there is a historically low unemployment rate at 3.7%. In June 2019 there were 224,000 jobs added to the country’s workforce.

The first six month of the year saw an average of 172,000 new jobs per month.

In the residential construction industry alone the increase was 21,000 jobs in June. The average for the first six month of the year in residential construction stands at 5,800 per month. Since the recession, there have been a total of 923,800 positions added in residential construction.

Also to aid in the booming housing industry is lower mortgage rates. Freddie Mac reports that the averaging 30-year fixed-rate is 3.8%. This is the fifth straight month that mortgage rates have fallen making this one of the best times to finance a home.

A recent industry survey shows that the mortgage loan applications for both purchase and refinance surged in the first week of June 2019.

In the most recent survey put out by the Freddie Mac’s research team it states that this “will help sustain the momentum in the housing market in 2019.”

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Lot Values Rise at Record High Rate Nationally

With half as many homes being started before the Recession, a new record has been set for lots for sale.  Not since 2006 has the cost of a lot exceeded its highest amount of $43,000, but in 2015, the average cost of a lot was $45,000, which is a record high for lot sales.  Lot values indicate an appreciation in the investment of real estate nationwide.  It is another positive indication of the recovery of the housing market, and it also allows builders to be able to value the new homes they build at higher prices as well.
One of the reasons for the increase in lot values is that there is actually a shortage of lots for sale according to the National Association of Home Builders (NAHB).  This lot shortage seems to be a nationwide problem as the land is available, but developed lots are scarce.  Thanks to the regulatory costs which are going up at a significant rate, ultimately this translates to a rise in development costs.  The work to develop new lots for sale costs more and thus boosts the cost and value of the lot.


Another factor is that the land that is being purchased for development is trending closer to denser urban areas.  These areas typically have costlier land because of their location and proximity to the city.  Many areas of St. Tammany Parish are located close to shopping, dining, and entertainment hubs – some of which are brand new.  Shopping districts around Covington have increased exponentially in the last 8 years requiring a large amount of road construction, expansion, and renovation in order to handle the increase in drivers and traffic.

Luckily, there have been large tracts of land that were zoned residential or had zoning changes to accommodate residential construction close to Covington.  These new subdivisions and neighborhoods have been built with the distinct advantage of having lots and homes for sale that had easy access to an unusual amount of social and retail locations that would not typically be associated with quiet, country, bedroom community new home communities.  Lot values in the St. Tammany Parish area can be higher than the national average, but they come with amazing community amenities as well as location amenities.  There are many new communities springing up in St. Tammany Parish, and Ron Lee Homes, a custom home builder can design and build new custom homes on your lot or on a lot you purchase.  Contact Ron Lee Homes Today by calling 985-626-7619 or E-mail Info@RonLeeHomes.com.

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Interest Rates to Remain the Same According to the Fed

A unanimous decision by the Federal Reserve the first week of June declared that interest rates would remain the way they were. This decision was made after reports revealed that the labor market is still not showing a strong recovery.  Even though there are still job gains across the board, they are slow and business investment has also not picked up.
Home buyers have enjoyed and even taken for granted interest rates that are historically low for the past 10+ years.  For those buyers who have been able to recover and succeed after the Great Recession, it is still one of the best times to buy a new home or buy an existing home in today’s housing market.

Predicted Rise in Interest Rate

Originally, the “Fed” had predicted that there would be two more rate hikes of the interest rate during 2016, but June’s meeting saw 6 members stating that with the slow growth of the economy, they only would really commit to a possibility of one more interest rate increase, citing the normalization of monetary policy taking a longer period of time than expected.
The good news is that the unemployment rate went down by 4.7%, but the gain of jobs in May, 2016, was only 38,000.  Also, the job increases reported in March and April were revised down by 59,000 – a loss of 458,000 in the labor force.

Strong demand still exists for employees and contractors in the residential construction sector.  The BLS JOLTS data shows that builders have approximately 200,000 unfilled positions.  However, during the course of April and May, 9,600 jobs were lost in the residential construction industry, and these jobs are now having to be refilled.

First-Time Home Buyers

Because of the cost of labor and materials to build a new home, first-time home buyers are finding it hard to acquire a new home.  Homes that are priced less than $150,000 account for only 6% of the market according to the National Association of Home Builders.  Currently approximately 31% of the home buyers surveyed expected to be able to pay less than $150,000 for their new home.

New home buyers in the market to purchase a new home will still benefit greatly from the significantly and historically low interest rates.  Any rise in the interest rate in 2016 will still probably keep the interest rate low enough to have affordable house payments.

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