Residential construction has been steadily growing since last June while non-residential has been declining.

By Manuel Gutierrez, Consulting Economist to NKBA
 

The private construction market continued to expand, rising by 1.7% in January to an annual rate of $1.16 trillion — the highest volume of private construction ever. Private construction is also $71 billion, or 6.8%, higher than a year ago.

However, the two major components of private construction, Residential and Non-Residential buildings, are not contributing equally to market growth.

Figure 1 shows that while both segments were increasing through 2019, last year they began to move in opposite directions. Following a sharp pullback in early 2020, residential construction began to recover last June and has been rising ever since, to reach a scorching annual rate of $713 billion in January. In contrast, non-residential construction has been falling over the same time frame to its current rate of $447 billion.

The private construction market continued to expand, rising by 1.7% in January to an annual rate of $1.16 trillion — the highest volume of private construction ever.

The private construction market was nearly evenly split between the Residential and Non-Residential segments a year ago, but today Residentialrepresents more than 60% of the market. Compared with last year, residential construction was 21% higher in January, while nonresidential had fallen by 10% over the same period.

All three major components of the residential segment have increased substantially over the last year, but the largest gain has been in construction of single-family houses, which is up 24% compared to January 2020 (Figure 2.)

Second in importance within the residential segment is spending for remodeling projects by homeowners. Based on January results, remodeling is expected to reach $244 billion for this full year, equivalent to one-third of the annual residential construction market on an annualized basis.

It should be noted that these remodeling estimates differ from those of other sources for a number of reasons. Mainly, this data is limited to spending by homeowners. It excludes spending by property owners for remodeling of rental properties, as well as general ongoing maintenance expenditures for all types of residential properties.

The third component of the residential construction market, multifamily housing, is up 1% over the previous month, but a robust 17% above January 2020.

Further improvements in residential construction are expected for this year. Most economic forecasts call for an increase in housing starts ranging from 3% to 5% in 2021, which would be slightly lower than last year’s 7% gain over 2019.

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