The latest construction spending report demonstrates a 0.6% increase in spending for October, higher than economists' expectation of a 0.5% rise, suggesting that interest rates may not necessarily be hampering building costs as much as anticipated. Additionally, private construction projects saw a 0.7% rise in investment and residential construction spending increased by 1.2%. New single-family home construction projects increased by 1.1% while spending on multi-family homes decreased by 0.2%. The drop in investment here has been largely attributed to the abundance of multi-family homes currently under construction as well as high vacancy rates which has reduced optimism and opportunity for supplying the market.
However, with the above in mind, higher interest rates are still predominantly impacting the construction industry as often, developers take out loans to build new properties. This is also particularly gripping for buyers also who usually take out mortgages to finance their new homes. Additionally, there is a labour shortage in the sector which is also hindering the ability to construct new homes. These costs, labour and interest rates, as also coming together with the increased costs of materials which have seen increases due to inflation, thus making it much less profitable to make new homes. However, given the lack of people selling their existing homes due to them not wanting to re-mortgage, the outlook for the industry is expected to improve in tandem with government stimulus such as the Infrastructure Investment and Jobs Act as well as the Inflation Reduction Act.
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