Single-family construction outpaces multifamily, with remodeling flat after a drop in the prior month.

By Manuel Gutierrez, Consulting Economist to NKBA

 

Construction activity is generally split into two distinct sectors, residential  and nonresidential, based on the structures’ primary end-uses. Although both are broadly influenced by the overall economy, they often move at different speeds, or, as is currently occurring, in different directions.

Last month, for instance, residential construction spending rose by 2.9% to an annual rate of $637 billion, while nonresidential actually fell by 0.7% in October to a $457 billion rate.

In fact, nonresidential spending has fallen virtually every month this year, with the exception of a modest 0.7% increase in June. Residential construction, in contrast, has risen this year except for the sharp, short-lived decline in single-family construction during the early months of the pandemic.  The residential sector currently contributes nearly six of 10 dollars spent on private construction projects in the U.S.

Residential is most important to the majority of NKBA members, who have benefitted from the general improvement and strength of the sector. It compares quite favorably with nonresidential construction, as well as several other segments of the U.S. economy, such as hospitality or retail, which have contracted and not yet recovered yet from the pandemic shutdown.

Residential Construction Continues Steady Rise

Data released on new housing starts and home sales demonstrate that the residential market segment has been booming over the last few months. Residential construction spending data confirms this, with two of its three major  components showing increased spending in October: single-family and multifamily construction were up, by 5.6% and 1.2%, respectively. The only exception was for Homeowner Remodeling, which was flat in October, following a sharp 6.3% drop the previous month (Fig. 2).

The latest increase in single-family construction follows increases of similar magnitude for the previous three months, bringing spending for October to an annual rate of $324 billion. New single-family housing currently accounts for half of the residential construction market.

The other component — units built in multifamily buildings — was up marginally, to an annual rate of $90 billion in October. This caps six consecutive months of increased spending in this sector.

Remodeling spending in residential units, according to the measurement by the Department of Commerce, was flat in October at $223 billion.

Despite the relative slowdown in remodeling, it is nearly 15% higher than a year ago, which can be seen in the homeowner remodeling graph in Fig. 2.

This data only includes spending by homeowners for remodeling of their own homes. A more comprehensive measure that also includes expenditures for general maintenance and improvements is generated quarterly by the Joint Center for Housing Studies. In its mid-October release, the Center estimates total homeowner expenditures for remodeling and repairs will be $338 billion in 2020, up 3.4% from last year.

Nonresidential Building Categories Are Key Indicators

There are a few nonresidential building types that are also of great interest to our members, either because they are significant users of their products or services or because they have a large impact on the overall economy.

Fig. 3 highlights four of those building types. Two of them,  lodging and office buildings, tend to use more of our members’ products or services.

Together, these four building types generate over half (53%) of nonresidential spending.

Construction spending on Manufacturing, Office and Commercial buildings is currently similar, and all three sectors also saw declines in October by roughly the same low percentage.

Lodging buildings, which account for just 5.5% of total nonresidential construction, fell another 3.1% in October, to an annual rate of just $25 billion.

Given the current uncertain situation with the pandemic, a turnaround in nonresidential construction is not expected next year.