Construction Spending Up but Homebuilders Lag

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By Josh Boak

WASHINGTON -- U.S. developers boosted construction spending in October at the fastest pace in more than four years, propelled by a surge in government projects. But spending on home construction and commercial projects both fell. Overall construction spending increased 0.8 percent in October to a seasonally adjusted annual rate of $908.4 billion, the Labor Department said Monday. That's up from September, when spending fell 0.3 percent.

The October pace was the best since May 2009 and was driven by a 3.9 percent surge in public spending. Federal spending increased 10.9 percent, suggesting the 16-day partial government shutdown had little impact on public projects. Spending on state and local government construction also rose. One troubling sign: Home construction fell 0.6 percent in October from September, dragged lower by a drop in single-family homes.

But spending on home construction has surged 17.8 percent in the past 12 months, the fastest year-over-year pace since the peak of the 2008 financial crisis. And a recent jump in permits to build apartments indicates that will continue.

Deutsche Bank chief U.S. economist Joseph Lavorgna said that spending on single-family houses should rebound given plans by homebuilders to ramp up construction. "The recent dip should reverse course given the ongoing improvement in permits for new construction," Lavorgna said in a client note.

Nonresidential spending fell 0.5 percent in October from September, lowered by declines in the building of private power plants, communication facilities and amusement parks and recreation centers. Construction of office buildings, hotels and private schools all increased.

The decline in home construction in October may prove temporary. Permits issued to build apartments increased in October at their fastest pace in more than five years. But permits for single-family home construction rose only slightly and were at the same pace as in May. Single-family houses make up roughly two-thirds of the residential construction market.

The pace of homebuilding has rebounded from the depths of the recession. But sales of new single-family homes have grown more slowly, and higher mortgage rates could slow them further. Both the October and September figures were released Monday, after reporting was delayed due to shutdown in October.

The government also said spending in August and July were less than initially reported. Mortgage rates are nearly a full percentage point higher than the spring. Rates rose in May when the Federal Reserve first signaled that it might slow its $85 billion in monthly bond purchases. But rates have moderated from recent highs after the Fed decided to keep its bond buying intact.

The average rate on a 30-year fixed mortgage was 4.29 percent, which is still close to historic lows.
Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to National Association of Home Builders.

More about homebuilding:
Spending on Construction Projects at Near 4½-Year High
U.S. Builder Confidence Slips Amid Budget Battle
More Developers Quietly Keeping Mineral Rights Under Homes They Sell

HOMES FOR SALE BY NOTED ARCHITECTS:
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Construction Spending Up but Homebuilders Lag

1689 Lake Ave, Highland Park, Ill.
Architect: Frank Lloyd Wright
For sale: $999,000

According to the Frank Lloyd Wright Foundation, the famed architect viewed architecture as being “not just about buildings … [but] about nourishing the lives of those sheltered within them.” Wright designed this board-and-batten residence for George and Alice Millard in 1906.
With an open floor plan centered around a large central hearth, the home is one of several “prairie style” houses Wright built in and near Chicago in the early 1900s. Horizontal lines, a shallow roof, broad eaves, dark hardwoods and integration with the surrounding landscape are key features of the style.

53 Domingo Ave, Berkeley, Calif.
Architect: Bernard Maybeck
For sale: $1.75 million

After attending L’Ecole des Beaux-Arts in Paris, Bernard Maybeck became one of the leading architects in California from the 1890s to 1920s. His homes are marked by the use of shingles and redwoods, as exemplified by this Claremont residence.

Built in 1915, the home has been beautifully preserved with wood craftsmanship evident throughout. The current owners also have updated the home to make it better suited for a contemporary lifestyle.

17 Beech St, Montauk, N.Y.
Architect: Robert A. M. Stern
For sale: $1.995 million

Currently dean of the Yale School of Architecture, Robert A. M. Stern is an award-winning architect, teacher and writer. He’s most known for designing in the postmodern style, although in a New York Times interview, he said it’s about “finding the expression for each project in relationship to what we and our clients think is appropriate to the project, to the place.”

In the beginning of his career, Stern designed this oceanfront residence with a sunroom paying tribute to the lush landscape. He has since gone on to design luxe apartment buildings including 15 Central Park West in New York City.

58 Yokun Ave, Lenox, Mass.
Architect: Charles McKim
For sale: $3.65 million

Nicknamed “Gusty Gables,” this home is one of several Berkshire cottages built during the Gilded Age. The 6,908-square-foot estate was designed by Charles McKim in 1879, the same year he co-founded the acclaimed architecture firm McKim, Mead & White.

Reportedly the last surviving McKim original in the region, the home serves as a prime example of his “shingle style.”

31250 Broad Beach Rd, Malibu, Calif.
Architect: Frank Gehry
For sale: $57.5 million

Frank Gehry’s work “exploded the geometry of traditional architecture to create a dramatic new form of expression,” according to Gehry Technologies, which was formed from the research and development team of Gehry’s firm. He’s known for using technology originally intended for the aerospace industry to create unique contemporary designs including this Broad Beach house.

Built in 1989 for Burton Borman, a former PennCorp Financial CEO who died last year, the home is marked by a striking, sloped roof and large windows overlooking the ocean.
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