Bidenflation: Home Construction Spending Slumps Despite House Shortage Pushing Prices Sky High

US President Joe Biden checks his watch before signing bills at the White House in Washington, DC, on November 30, 2021. (Photo by Jim WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)
Photo by JIM WATSON/AFP via Getty Images

Homebuilders pulled back on construction spending in October despite robust demand for houses that has pushed home prices up more than 19 percent compared with a year ago.

Spending on new single-family home construction by the private sector slumped 0.8 percent compared with September, according to data released Wednesday by the Census Bureau. Spending on multi-family construction fell 0.1 percent.

The Census Bureau data are seasonally adjusted. On an unadjusted basis, single-family home construction spending by the private sector fell by nearly 2.5 percent.

Overall construction spending rose 0.2 in October due to an increase in government spending. Public-sector construction spending rose by a seasonally adjusted 0.4 percent. Highway and street spending rose 2.4 percent seasonally adjusted.

Seasonal adjustments, however, played a big role in that figure. Unadjusted, overall public sector construction spending fell 5.7 percent and highway spending crashed 8.8 percent. One way of interpreting the gap between the adjusted and unadjusted figures is that the decline in spending before adjustments was much less than would be seasonally expected as summer moved into autumn.

On a year-over-year basis, construction spending is up sharply. Overall construction spending was up a seasonally adjusted 8.6 percent annually. Year to date, construction spending is up 7.5 percent. Private sector single-family construction is up 23.1 percent annually and 35.9 percent year to date. Government spending is up 0.4 percent annually and down 4.8 percent year-to-date.

The drop in spending is even more dramatic when inflation is taken into account. The Census Bureau figures are nominal, meaning they are not adjusted for inflation. In the period covered by the most recent report, the cost of private-sector construction services rose 7.5 percent, according to the Labor Department’s Producer Price Index. Compared with a year earlier, construction services cost 13.3 percent more. The cost of materials for construction rose 0.7 percent and were up 10.1 percent compared with a year ago. Components for construction rose 1.8 percent for the month and were up 25.2 percent compared with the year prior.

Home prices were up more than 19 percent nationally in September, a gain that ordinarily would prompt additional spending by homebuilders. So the slump in private sector building is unusual.

Builders may have pulled back on spending due to the higher prices, fearing that they could not pass on such huge increases to buyers who are already facing historically high home prices. In other words, inflation appears to be a drag on construction.



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