Construction Boosted By Public Works, Offices

The Mortgage Corner

We are already seeing the results of the $1.1T budget agreement, and $305 STIRR Surface Transportation and Highway Trust Fund bill. Construction spending rose a strong 1.5 percent in January due to a surge in highway & street spending as well as gains for manufacturing and on Federal construction projects.

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Graph: Calculated Risk

This is incredible news, as it is the first time that Repubs and Democrats agreed on federal spending since the great sequester cut spending across the board in 2011. The result will be much needed repairs of our almost century-old infrastructure. Remember those Flint, Michigan lead drinking water pipes?

We may be finally turning the corner on neglect of our public infrastructure, so held back by the austerity policies of one political party. There was an impressive 33.9 percent gain for highways & streets (mostly done by states), and a smaller 9.9 percent increase in the Federal category.

And also in the private sector, private nonresidential components, namely offices, had a 24.8 percent year-on-year gain. This is another sign of increased business investment.

But the housing sector also benefited on the multi-family side, reflecting strength in rental prices. Year-on-year spending on rental housing is up 30.4 percent vs 6.6 percent for single-family homes. Together, residential spending is up a huge year-on-year 7.7 percent.

The availability of acquisition, development and construction (AD&C) loans has been a factor holding back a stronger rebound in home construction until now, but easing credit conditions and a growing loan base should help expand the residential building market.

According to the National Association of Home Builders and FDIC analysis, the outstanding stock of 1-4 unit residential construction loans made by FDIC-insured institutions rose by $2.6 billion during the fourth quarter of 2015, raising the total stock of outstanding loans to $60.9 billion.

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Graph: NAHB.org

“On a year-over-year basis, the stock of residential construction loans is up 18.9%, as indicated by the red bars in the graph above. The current reading is higher than the 16% to 17.5% annual growth rate range that the series had been in for the prior year and a half, says the NAHB. “This change suggests accelerating single-family building growth in 2016, which is consistent with NAHB’s forecast. Since the first quarter of 2013, the stock of outstanding home building construction loans has grown by 49%, an increase of $20.1 billion.”

This is further evidence the housing market is just beginning to recover. Banks are finally lending again, and interest rates are at record lows, with the 10-year TBond yield at 1.76 percent and 30-year conforming fixed rates as low as 3.25 percent in California.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Housing, housing market, Politics, Weekly Financial News and tagged , , , , , . Bookmark the permalink.

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