The Latest on Construction Spending

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses  construction spending.

• Construction spending fell in June due to cuts in government building projects and from less new construction of commercial real estate buildings.  Residential construction activity held on over the month and is now higher by 17.6 percent from one year ago.
• Residential construction has been making a steady comeback since 2009 when the home buyer tax credit began to revive the housing market.  From the low point, the value of new home construction is up 43 percent.  But due to the severe fall during the housing crash, the current construction activity is only about half the level of bubble construction activity.  It is a good thing that the construction is recovering and far away from a bubble.
• Commercial real estate construction has not yet made any meaningful comeback.  Low new construction combined with some rises in new leasing will mean falling vacancy rates over time.  Rents will get steadily bumped up as a result.
• As part of sequestration on government spending, there are fewer government funded construction projects.  This trend could continue for few more years.
• Because of less than robust recovery in new construction, there are still 2 million construction workers today compared to the peak boom year.
• Today’s New York Times discusses potential outlook for Detroit.  Can it make a comeback after the bankruptcy?   It will depend on many things.  If there is a genuine sustained revival at some point then construction jobs will abound in Detroit.  A case of Washington D.C. going from the ‘murder capital’ of the country in the 1990s to a thriving walkable city of today is a good example of a turnaround.  Pittsburgh is another example as the city shed away from its steel industry to create jobs in other sectors.  Even going back centuries to the classical times, Rome after the great fire destroyed much of the city and its square-shaped Greek style buildings, Roman citizens started anew by reconstructing buildings into a new Roman style with curves, including its venerated Coliseum.  Let’s hope Detroit can make the right decisions to make a good comeback.  A link to New York Times story is here  for those interested:  http://www.nytimes.com/2013/09/03/us/dreams-but-little-consensus-for-a-new-detroit.html?ref=us&_r=0