Housing Industry Update | Construction Spending Increased and Prices Rose
The US Census Bureau announced that construction spending in July 2018 was estimated at a seasonally adjusted annual rate of $1.32 trillion, 0.1% above the revised June estimate and 5.8% above the July 2017 estimate. Both public and private residential construction contributed to the increase.
Public sector residential spending was 0.7% more than in June. Privately funded residential construction increased by 0.6% from the prior month and by 6.7% from the prior year.
Nonetheless, builder confidence in the market for newly-built single-family homes remains unchanged. Higher construction material costs have repressed optimism about growing housing demand, according to The National Association of Home Builders/Wells Fargo Housing Market Index. Lower housing affordability appears to be the culprit.
“[Builders] are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots” Randy Noel, chairman of the National Association of Home Builders, commented.
Builders remain wary of tariffs and the impending trade war and their effects on construction material costs, Noel continued.
In a recent conference, NAHB Chief Economist Robert Dietz claimed the 20% tariff rate on Canadian softwood lumber imports alone have raised the average price of newly-built homes by $9,000. That added cost has more than doubled since last year when the NAHB reported average house increases of $3,600 due to the tariff.
As costs continue to rise, more homebuyers are choosing smaller and older homes with fewer amenities, and many are exiting the market altogether.