The value of new construction starts in October, at a seasonally adjusted annual rate of $668.5 billion, was essentially unchanged from September’s revised amount.
According to McGraw-Hill Construction, New York, October showed gains for nonresidential building and nonbuilding construction (public works and electric utilities), that offset a moderate decline for the housing sector. Through the first 10 months of 2005, total construction on an unadjusted basis was reported at $550.5 billion, a 9 percent increase relative to the previous year.
The recent strength for total construction has been helped by a healthier pace for nonresidential building, combined with what is still an exceptionally strong amount of homebuilding,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. “But with mortgage rates now edging up, there’s the growing sense that single family housing may be rounding a peak. For total construction to stay close to current levels, further expansion will be needed from both the nonresidential and public works sectors. The higher cost of building materials, especially in the aftermath of the September hurricanes, makes it more difficult for this to occur. On the plus side, nonresidential building will derive some benefit from improved market fundamentals such as rising occupancies, while the new federal transportation bill should aid the public works sector.
Nonresidential building. In October, nonresidential building rebounded 8 percent to $176.3 billion (annual rate). Education-related building, the largest nonresidential category by dollar volume, increased 12 percent, offering more evidence that it’s reestablishing a strengthening trend. Institutional categories with a reduced volume of construction starts for October were healthcare facilities, down 1 percent; public buildings (courthouses/detention facilities), down 17 percent; and transportation terminals, down 50 percent.
The commercial sector was mixed in October. Moderate growth was shown by stores, up 2 percent; and offices, up 7 percent. Losing momentum in October were hotels, down 2 percent; and warehouses, down 34 percent. The long- depressed manufacturing plant category soared 188 percent.
Nonbuilding construction. At $110.2 billion (annual rate), nonbuilding construction advanced 13 percent in October. Utility construction sparked this growth.
Residential building. In October, residential building slipped 6 percent to $381.9 billion (annual rate). While down from September’s pace, October was still 2 percent higher than the average for the previous nine months.
Single-family housing in October retreated 5 percent, as this robust market appears to be settling back very gradually. The 30-year fixed mortgage rate rose from 5.8 percent in September to 6.1 percent in October, and November has seen a further increase to 6.4 percent. The cost of financing in coming months will likely dampen demand for housing during 2006.
Multifamily housing in October dropped 8 percent from a very strong September. Although not quite as brisk as the activity that was reported during the third quarter, multifamily housing in October still featured groundbreaking for five projects valued individually at greater than $100 million. Two of these large multifamily projects are located in Las Vegas ($141 million and $115 million), while the other three ($136 million, $120 million, and $106 million) are located in Florida. October’s residential decline was the result of this regional pattern — the Northeast, down 14 percent; the West, down 8 percent; the South Atlantic, down 5 percent; the South Central, down 3 percent; and the Midwest, up 2 percent.