The U.S. Commerce Department announced this week that growth in home building pushed construction spending to the highest levels since December 2007 when the Great Recession began. The report, released on December 1st, noted that construction spending in October rose 1 percent from the previous month, pushing the seasonally adjusted annual rate of spending to more than $1.1 trillion. This growth, bolstered by steady increases in home building, bodes well for mortgage lenders and the wholesale mortgage lending industry as a whole.
Overall, construction spending has increased 13 percent over the past year. This growth is largely attributed to the major increases in apartment and condo construction in October, which experienced a 28-percent jump from the previous year. The growth of apartment and condo construction reflects trends in a U.S. housing market that has seen more Americans staying in rental apartments for longer instead of buying a home. As a result, nearly a third of buildings completed this year were apartments and condos, compared to 27 percent in the months prior to the recession in 2007.
While this news could introduce a modicum of anxiety for mortgage lenders, the Commerce Department also reports good news for single-family home construction. Low mortgage rates and solid job gains over the last three years have boosted home sales; compared to last year, home sales rose 15 percent. Construction spending on single-family homes rose by 1.6 percent in October alone, up 11.4 percent from last year.
According to the recent Fitch Ratings report, the increase in construction spending is reflected in the growth of aggregates producers and cement manufacturers, which both reported strong growth during third-quarter 2015. The roofing industry also grew, as did industry wallboard and architectural coatings. The growth in these industries is indicative of the growing spending on housing, both apartments and homes.
In addition to increased spending on housing units, the U.S. saw a 1.4 percent increase in public construction of schools, highways, and other infrastructure in October. Public construction spending currently sits at its highest level in five years and has grown by 6.6 percent over the last 12 months. This growth was driven by a surge in federal government spending that counteracted a dip in investment from state and local governments.
Construction spending from the manufacturing sector also climbed 3 percent despite an overall contraction in U.S. manufacturing. The dip in manufacturing is likely related to a strong U.S. dollar and a slowing global economy, and is the first time in three years that the U.S. manufacturing sector shrank.
The news from the manufacturing sector notwithstanding, the encouraging reports on the economy show positive momentum in home building, which is good news for mortgage lenders.