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The Real Reason Construction Activity is Up

by Peter Thomas Ricci

Construction numbers have been up in 2014, but there’s a very specific reason behind the increased activity.

Overall construction spending in the U.S. economy rose 0.2 percent from March to April and 8.6 percent from April 2013, reaching a seasonally adjusted annual rate of $953.5 billion.

That was the big finding in the Census Bureau’s latest construction report, which also found that for the first four months of 2014, construction spending has amounted to $274.5 billion, or 8.9 percent above where it was during the same period in 2013.

On the surface, those are all great stats, especially given how shaky construction has been so far this year; however, as with all things construction in the post-bubble marketplace, things are not quite what they seem with the Census Bureau’s report, and we have multifamily housing to thank for that.

The Overwhelming Effect of Multifamily

We may seem a bit obsessed with multifamily housing, considering how often it pops up in our construction-related stories, but it really is at the center of the new construction marketplace right now, and April’s numbers only offered further proof of that.

Consider this: though single-family home construction rose by 14 percent year-over-year in April, and though remodeling rose 19 percent year-over-year, new construction for the multifamily marketplace rose an incredible 31 percent.

So once again, we have to reconcile with the fact that though construction continues to recovery, it’s doing so at the pace of the industry’s soaring multifamily sector – and the fact that the majority of those multifamily units are being planned and constructed as rentals, rather than condos.

The Steady Improvement of Residential Construction

Still, we can’t completely disregard the progress that has been made in residential construction. At $378.5 billion in April, residential construction was pretty much flat from March, though it was up by 17 percent from last year, according to Bill McBride’s computations at Calculated Risk.

Also, though residential is down 44 percent from its early 2006 peak, it’s up 66 percent from the post-bubble low of 2009/2010, and is only expected to grow further as the market continues.

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