Homeowner remodeling spending, although slightly off in February, is still up a remarkable 24% vs. the same period in 2020.
By Manuel Gutierrez, Consulting Economist to NKBA
Total U.S. construction spending fell by a modest 0.7% in February, to an annual rate of $1.5 billion. Despite that monthly drop, spending remained 5.3% above last year, when total construction was at an annualized $1.44 billion. Private-sector construction, which accounts for over three-quarters of the total, was $1.17 billion, down 0.5% from the previous month, while spending by the public sector fell by a more significant 1.7% to $351 billion.
Figure 1 displays the breakdown of private construction since 2010 into its two major sectors, Residential and Nonresidential. The chart reveals that while both followed a similar path through 2016, they began to diverge afterwards.
In fact, until that year, the amount of spending by each of the two sectors were almost equal, and actually were identical in June 2015, when each came in at $432 billion. They then began to grow apart, with last year’s sharp divergence the result of a home-buying and remodeling spree that propelled February’s residential spending number up 21%, to $718 billion. At the same time, nonresidential construction is running almost 10% below last year at $448 billion.
While in 2015 the market was split 50/50 between the two sectors, as of this February, the ratio stands at 62/38 in favor of residential.
The three components of residential construction shown Figure 2 declined in February, although their corresponding drops were minimal.
The biggest decline in percentage terms was in multifamily construction, which fell by 1% in February to an annual rate of $93 billion. Despite this drop, the value of multifamily construction is still 15% higher than in February 2020.
Despite a slight drop-off in February, residential construction spending is up a remarkable 24% over the previous year.
The second biggest decline was in homeowner remodeling, which is down 0.2% to an annual rate of $248 billion. Directionally similar to the overall residential market, homeowner remodeling is up an extremely strong 24% from February 2020.
The largest component in residential construction, single-family housing, was virtually unchanged in February as it was in January, at $377 billion. This segment accounts for over half of total residential construction.
Although most NKBA members do not participate directly in nonresidential construction projects, a review of recent events in this sector is of interest.
Figure 3 displays last year’s trend in construction spending for several building segments within the nonresidential sector.
The lines reflect the annual rate of construction value each month over the latest 12 months. The dark blue dollar figure in the upper right of each chart is the annualized dollar rate (in billions) of construction in February of this year. The figures within parenthesis are the change from February 2020.
It’s clear that construction spending in virtually all segments has declined from last year with few exceptions.
Of note, the prospects for building types such as Office or Lodging, remain dim. Hotel occupancy was running below 50% capacity last year vs. the normal 70% capacity. This suggests that it may take a while before we see any significant improvement in construction of hotels.
For office buildings, with a large portion of employees working from home, the prospects for new building construction are also not good. Currently around 15% of office building space is vacant, with many building property owners forced to offer more favorable rates on leases for office space.
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