In the wake of the housing sector’s decline, circa 2007, the construction industry has become reluctant to initiate new home starts. Fluctuating market conditions continue to weigh on the majority of companies within the industry. Construction spending was therefore limited in the years following the bubble. However, recent signs of economic progression have encouraged construction spending, driving both commercial and public projects. As a result, July witnessed home construction spending reach its highest point since 2008.
On a national level, spending for private residential construction projects increased by 0.6 percent, culminating in a seasonally adjusted annual rate of approximately $334.58 billion. While the Commerce Department neglected to take inflation into consideration, these values are representative of levels we have not seen since September of 2008.
The recent increase is directly correlated to overall construction spending, which includes commercial and public projects as well as housing. Construction spending increased throughout the entire United States by 0.6 percent to $900.82 billion, signaling the highest it had been since June of 2009. The increase was an encouraging sign for the housing sector, as economists had previously predicted the jump to be around 0.4 percent.
The recent increase in construction spending is due, largely in part, to consumer confidence. As the housing sector inches towards recovery, the economy benefits exponentially. Spending, in association with job creation, have demonstrated an increased propensity for growth. However, surging interest rates continue to temper expectations.
Higher mortgage rates make it increasingly difficult for prospective homeowners to acquire a property. The average 30-year fixed-rate mortgage for loans of $417,000 or less, meanwhile, rose to 4.80% toward the end of August, the Mortgage Bankers Association said last week. That was the highest rate in more than two years.
Regardless of interest rates, however, construction spending trends are encouraging for the entire housing sector.