U.S. construction spending rose by more than expected in December, highlighting the ongoing strength of the U.S. housing market.
Construction spending jumped 1 percent in December to a seasonally adjusted annual rate of $1.49 trillion, the Commerce Department reported Monday. That was better than the eight-tenths of a percent forecast by economists.
Making the December gain even more impressive, November’s spending was revised up tw0-tenths of a percentage point to a 1.1 percent gain.
Compared with a year ago, construction spending is up 5.7 percent. The November year-over-year gain was revised from 3.8 percent to 5 percent.
The gain was driven by residential construction, which soared a seasonally adjusted 3.1 percent in December, the seventh straight monthly gain. Compared with a year ago, construction spending on housing is up an eye-popping 20.7 percent.
Drilling down even further, it is clear that it is private sector single-family home construction that is booming. This rose 5.8 percent compared with November and is up 23.5 percent compared with a year ago.
The surge in demand for single-family homes caught the real estate professionals and home builders by surprise. Sales plunged in March and April, due to lockdowns and potential buyers staying away for fear of contracting the virus. The initial surge in May and June was mostly seen as arising from pent-up demand. But as the surge has continued into the winter months, it is now increasingly clear that this is a bigger secular change in the housing market.
Buyers are seeking out a respite from increasingly violent and deadly cities, where murders and shootings have exploded higher. Gun murders were up 31 percent in the United States in 2020. New York City, for example, finished 2020 with a 14-year high in shootings and a 40 percent increase in murders from the year before. This summer, New York and other cities were beset by riots, looting, and left-wing mobs demanding the defunding of police departments.
Schools and workplaces have also been shut down so that family members are working and learning from home. This puts a premium on space, feeding into demand for larger houses. Many people who once commuted five days a week expect to work only part-time from the office once the virus is contained.
Surging prices and demand are not luring Americans out of their homes. The median price of an existing home sold in December was $309,800, a 12.9 percent jump compared with a year ago. That is the highest median price on record.
The number of homes for sale in December was 23 percent below December 2019’s inventory, down to just 1.07 million, the National Association of Realtors said. That is the lowest level in records going back to 1982.
As a result, demand for new homes is soaring. New home construction accelerated in December to its fastest pace since 2006. Single-family home starts have risen for 8 consecutive months, the longest-lasting construction boom in 50 years.
But social distancing and remote work are weighing on other forms of construction. Spending on non-residential housing fell 1.7 percent. Spending on multifamily housing, which includes apartment buildings, rose just one-tenth of a percent in December.
Spending on private construction was at a seasonally adjusted annual rate of $1,137.6 billion, 1.2 percent above the revised November estimate. Government spending on construction rose a milder five-tenths of a percent.