Construction Spending Reaches a Four Year High

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Peoples Home Equity puts recently released construction spending data into a housing perspective for readers.

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Both single family and apartment spending increased by 0.6% in July vs. a -0.9% decline for June.

Peoples Home Equity has been informing its prospective mortgage applicants that construction spending rose 0.6% in July compared to an unchanged data reported for June. According to USA Today on September 3rd, construction spending has now reached a seasonally adjusted amount of $900.8 billion making it the highest amount since June 2009. As for specifically housing, both single family and apartment spending increased by 0.6% in July vs. a -0.9% decline for June. This news is particularly positive for home buyers because it supports the fact that demand for real-estate has returned, and further price increases are expected.

A shortage of inventory has artificially propped up real-estate prices since property values started to really climb back beginning May, 2012. As inventories remain short, many homeowners continue to live in their homes in negative equity until the value is worth more than their mortgage again. Negative equity occurs when the value of the home secured is worth less than the outstanding balance of the mortgage. The fact that 19.8% of homes nationally were in negative equity by the end of first quarter 2013 means there is still room for improvement despite an overall growing housing market.

While construction spending is not removing the amount of homes in negative equity from the market, it is increasing supply for buyers. In turn, more homes to meet demand increases real-estate transactions and consumer spending for housing goods. In addition increases supply as a result of construction spending gives buyers using a mortgage the opportunity to bid on more preferred homes with less competition from cash buyers. Cash buyers will be pushed to a lower percentage as more first-time homebuyers emerge due to lower unemployment rates. Once a large amount of first-time homebuyers begin to purchase these new home we will see real price appreciate due to rising demand, not limited supply.

Peoples Home Equity expects home values continue higher with any increase in construction spending, while respecting the challenges of rising interest rates. Contact a loan officer at: (855) 897-0300 to discuss loan types for a property desired, or refinance opportunities for a home in negative equity.

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Ornis Mala
Peoples Home Equity
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