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Residential Construction

Residential Construction Spending Climbs to 4-Year High

Private residential construction spending surged 3 percent on a month-to-month basis in October 2012. The initial estimate for September was revised downward from a 2.8 percent gain down to a 1.1 percent rate of growth; however this was more than offset by an upward bump in the previously reported estimate for August from 1.2 percent to 2.8 percent. Following increases in 14 of the last 15 months nominal spending on private residential construction activity is at its highest dollar value since late 2008. In addition spending has risen 32 percent above the trough registered during the third quarter of 2010.

New single-family homes continued to post solid rates of growth increasing 3.6 percent on a month-to-month basis for the second month in a row. Spending is also 29 percent above its year-ago level and has climbed 55 percent since bottoming out in mid-2009. This latest print on construction spending merely confirms the firming recovery for new single-family home construction that has been observed via housing starts and the HMI. With permit authorizations climbing rapidly and hitting their highest levels since the summer months of 2008 we anticipate this robust pace of growth in construction activity to continue over the near term.

The positive momentum continued for the multifamily sector notching its 13th consecutive monthly increase with a 6.2 percent gain over September 2012. Overall the dollar value of multifamily construction activity has surged more than 82 percent from its cyclical low observed just two years ago due in part to strong growth in renter demand. Multifamily starts have averaged better than 230000 units over the duration of 2012 and given that permits have averaged approximately 280000 units during the same time period multifamily construction spending will likely rise further in the coming months.

Home improvement activity expanded 1.8 percent during October 2012 offsetting the downward revision of a 1.2 percent decline posted for September. Using the 3-month moving average to iron out some of the volatility in this metric nominal remodeling spending has reached its highest point in five years. NAHB's own Remodeling Market Index (RMI) has pointed to an even stronger assessment of current market conditions by professional remodelers as the RMI reached 50 for the first time since 2005.

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