Questions? email us

Construction Spending – What do March numbers mean to banks?

Construction spending in the private and public sectors was reported by the US Census Bureau to be down less than 1% in March compared to the month before, but up 2% over March of last year. The report; however, includes spending for public construction as well as non-public expenditures for sewage disposal projects, power, highway and street, power and many other sectors not typically financed by banks.  The portfolios of most lenders are mostly comprised of projects in the key sectors of the private constructions in market; residential, office, lodging, commercial and health care. When considering only non-public spending, residential construction declined 1.6% in March, and was 2.6% below spending levels in March of 2014. In other key sectors; however, construction spending was up .45% in March, and showed an increase of nearly 15% over March of last year! Despite the large increase in the commercial sectors, combined non-public spending was up only 2% over last year because residential spending makes up the lion’s share (70%) of total spending in these sectors.

Construction Starts

At the same time, construction starts in March were down 2.5% in the single family residential sector despite an increase of 2.9% in permits. The same report shows a dramatic decline in permitting for new multifamily units (7.4%), though the number of units under construction is nearly 25% above March 2014.  Drilling into regional numbers; starts were down significantly in Northeast and Midwest, but flat to increasing in the west and south.

Adding to this, on April 15 the Federal Reserve reported slowdown in residential real estate in some districts due to weather conditions, but improved residential real estate activity in the West and Midwest.  Contacts throughout the Fed’s network were optimistic about the prospects of residential real estate through the summer months. Similarly, most districts reported improved commercial real estate demand.

What Does All Of This Really Mean?

Single Family Construction – Spending and starts are down, but permits are up and the Fed reports improved conditions and tight inventories in many districts. Developers seem to be taking a wait and see approach, but are ready to increase the supply where supported by local markets.

Multi-family – Spending, permits and starts are down, though the number of units under construction remains high. The Fed reported strength in a few districts, but was mostly silent on this segment, and the Architectural Billings Index reported declining activity in the sector. Overall developers appear to be pulling back from new development of apartments.

Commercial – Spending and permits are up, and the Fed reports strong conditions with very few exceptions, though impacts are likely in areas affected by energy pricing.

Overall, these statistics show that strong economic conditions in the commercial sector continue to fuel the real estate recovery, with new commercial construction likely driven by pent-up demand. As a result of low single-family inventories and reported strong demand in most districts, single family construction is likely to gain strength through the summer, but developers have pulled back from new multifamily developments. Overall economic performance in 2015; however, has been below economist expectations. Some have blamed this under-performance on winter weather conditions, but that theory will be put to the test over the next few months.  Indications, so far, are for a continued cautious pace, with no wild increase or decline in construction spending.

Be Sociable, Share!

Related Posts

Solar Due Diligence

Webinar: a user’s guide to Phase II ESAs

css.php