December Private Residential Spending Dips

Private residential construction spending declined 0.3% in December 2022, as spending on single-family construction dropped 2.3% amid higher mortgage rates. Private residential construction spending fell for the seventh consecutive month, standing at an annual pace of $857 billion. However, this total remains 1.7% higher compared to a year ago.

The monthly decline is largely attributed to lower spending on single-family construction, which experienced the seventh straight month of decline. Compared to a year ago, spending on single-family construction was 14.7% lower. This is consistent with a pull back on single-family home building, as a surge for interest rates cooled the housing market in 2022.

Multifamily construction spending increased by 3.2% in December, after an increase of 3.9% in November. This was 20.7% over the December 2021 estimates, largely due to the strong demand for rental apartments. Private residential improvements edged up by 0.7% in December and was 20.4% higher compared to a year ago. The remodeling market continues to overperform the rest of the residential construction sector.

Keep in mind that construction spending reports the value of property put-in-place, so it is a measure of property value placed in service at the end of the construction pipeline.

The NAHB construction spending index, which is shown in the graph below (the base is January 2000), illustrates how construction spending on single-family has slowed since early 2022 under the pressure of supply-chain issues and elevated interest rates. Multifamily construction spending has had solid growth in recent months, while improvement spending has increased its pace since early 2019. Before the COVID-19 crisis hit the U.S. economy, single-family and multifamily construction spending experienced solid growth from the second half of 2019 to February 2020, followed by a quick post-covid rebound since July 2020.

Spending on private nonresidential construction decreased by 0.5% in December to a seasonally adjusted annual rate of $570 billion. The monthly private nonresidential spending decrease was mainly due to lower spending on the class of manufacturing category (-$2.8 billion), followed by the educational category (-$0.5 billion), and the health care category (-$0.5 billion).