Why rising home construction could lead to another housing boom

Market Realist

Will this week’s releases impact the Fed’s March FOMC meeting? (Part 5 of 12)

(Continued from Part 4)

Construction spending

Construction spending figures for January were released Monday, March 3. The Census Bureau of the U.S. Department of Commerce estimated construction spending during December 2013 at a seasonally adjusted annual rate (or SAAR) of $931 billion—0.1% above the revised November estimate of $930 billion and 5.3% above the December 2012 estimate of $884 billion.

The value of private construction (unadjusted) was estimated at $627 billion in 2013, 8.5% above the $578 billion spent in 2012. Residential construction in 2013 was $331 billion, 18% above the 2012 figure of $280 billion, and non-residential construction was $297 billion, 0.4% below the $298 billion in 2012.

Housing shortage may point to spring surge

The year-on-year increase in construction implies that economy is expanding, which, other factors remaining constant, supports the Fed’s intention to continue tapering the purchase of agency-backed mortgage securities and longer-term Treasuries.

The long-term trend shows that construction is on a clear uptrend. Plus, the increase in residential construction shows that the housing sector is indeed getting stronger. This is expected to be buoyed by the falling inventories of homes spurring increased private residential construction.

According to Toll Brothers’ (TOL) chief executive officer:

“While it is still too early to draw conclusions about the Spring selling season, we remain optimistic based on solid affordability, attractive interest rates, growing pent-up demand and an industry still under-producing compared to both historical norms and current demographics.”

The surge in housing may relate to employment indicators. To read about two employment indicators due to release this week, move on to Part 6 of this series.

Continue to Part 6

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