Private residential construction spending increases again

Private residential construction spending increased modestly in May, driven primarily by remodeling, a new industry report found.

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According to the latest construction spending data from the U.S. Census Bureau, private residential construction spending rose 0.3% from April and 1.8% from a year ago to a seasonally adjusted annual rate of $930.2 billion in May, marking the third consecutive month of gains, although at a slower pace.

The increase was boosted by improvement spending, which was the only residential sector that posted a monthly increase, 0.9%. Remodeling spending also rose 8.1% year over year, according to the National Association of Home Builders analysis of U.S. Census data.

Single-family construction spending decreased 0.1% in May, consistent with the weak builder sentiment seen in the NAHB and Wells Fargo Housing Market Index. On an annual basis, single-family spending fell 4%, while multifamily construction spending also ticked down 0.1% from April, but climbed 3.3% from a year ago, the report found.

“In April, that gap was closer to 3%,” said Maor Greenberg, CEO of Spacial, a structural engineering platform for residential construction, of new single-family spending. “So it is widening, and single-family is a forward-looking indicator. If there are fewer starts now, there will be fewer completions in the fall.”

Private nonresidential construction spending dropped 0.3% in May and 6.6% from a year prior. Meanwhile, spending on data centers still increased, although at a slower pace, up 0.6% month over month and 23% year over year, according to the NAHB analysis. 

Religious spending outpaced all nonresidential sectors, growing 1.6% month over month and 26.3% year over year.

Overall, total construction spending reached $2.2 trillion on a seasonally adjusted annual rate, made up of nearly $1.7 trillion in private construction and $541.2 billion in public construction. Total construction rose 0.1% in May, bolstered by a 0.5% increase in public spending, but fell 1.5% on an annual basis, as private spending declined 2.1%, according to the report.

“We are building fewer new single-family homes than we were a year ago, all while spending looks steady,” Greenberg said. “So, affordability is getting worse, and the middle class will feel it first. The year-over-year picture is what’s changed: Last month, the annual change was inside the margin [of error], so I thought it was merely noise. Now, though, it clears the margin. …  It’s a real trend this time, not noise.”