November 2016 - End of the Road?

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52 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST Are Construction Spending Declines a Mirage? Despite steep drop, single-family construction spending mirrors 2015 numbers. O n the surface, it looks like August's data shows it has been a rough six months for single-family construction spend - ing. But has it really? Single-family construction spending declined on a monthly basis for the sixth month in a row in August, according to the Census Bureau's August 2016 Construction Spending report released in October. Not only that, it declined on a yearly basis—by 1.5 percent— for the first time in the housing recovery period. But according to the National Association of Home Builders, the numbers for both construction spending and single- family housing starts for the last six months are right on par with the data reported for the last six months of 2015. Spending for single-family con - struction was reported at $235.7 billion in August, which was a decline of 1 percent from July. The declines in single-family con - struction spending and in-home improvement spending offset the record increases experienced by multifamily construction, which rose to $62 billion in August—a figure that exceeded the peak readings from March 2016. Multifamily spending has been outpacing that of single-family since 2010, according to NAHB. The single-family construction spending decline is reflective of the drop-off seen in single-family housing starts for August, also reported by the Census Bureau. Overall, total private residen - tial construction spending ticked down to a seasonally adjusted annual rate of $449.2 billion in August, which was a decline of 0.3 percent from July. The recent declines in single- family home starts and construc - tion spending may not be a cause for concern, however. NAHB Chief Economist Robert Dietz said part of August's decline in home starts was due to weather- related issues, such as flooding in Louisiana, and he expects single- family construction to improve in the South in the months ahead. NAHB AVP for Forecasting and Analysis Robert Denk said the last six months of decline for single-family construction spending merely represent a leveling off from an abnormally high spike in single-family starts in February up to about 845,000. For the last six months, they have averaged about 750,000, which is right around what they averaged for the last six months last year. Denk said he expects single- family construction spending and starts to accelerate in the next six months as they continue their return toward pre-crisis levels. "The recovery is decidedly slow but not quite finished," Denk said. "The decline in spending is a misrepresentation of the improvements we've seen in single-family housing starts." According to Trulia Chief Economist Ralph McLaughlin, "Housing starts slowed considerably in August, but the year-rolling total is still 7.5 percent higher than last year. Though a welcome relief for homebuyers stymied by low inven - tory, homebuilders still have a long way to go to meet historical norms."

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