Residential Construction Slows

The Census Bureau recently released US residential and nonresidential construction spending data. This data includes a forward glimpse into the pace and volume of new residential construction.

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Seasonally adjusted overall construction spending increased by 5.7% from January 2022. This growth is driven by the nonresidential component. Since January 2022, nonresidential construction spending increased 15.9%, while residential declined 3.8%. The National Association of Homebuilders also recently noted that homebuilder confidence fell to near-record lows in February.

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Overall residential construction spending remains well below the 20-year historical median of 10.6% growth year-over-year. Waning builder confidence and construction spending places additional pressure on the limited inventory in markets that rely heavily on construction to meet their growing populations' housing needs.

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The National Association of Realtors recently warned that limited residential construction could further strain home affordability within a "housing market already sorely lacking inventory." Residential construction permits are forecasted to decline over the next two years in most markets.

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As construction spending and permits decline, new home inventory could become increasingly limited. Future Plotify Insights will decode how construction relates to home inventory, along with elevated material and labor costs. Stay tuned for more updates.

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