Remodeling boosts private residential construction spending

Private residential construction spending rose 0.3% in May to a seasonally adjusted annual rate of $930.2 billion, driven primarily by a surge in home remodeling. This growth occurred despite a 0.1% monthly decline in both single-family and multifamily construction spending, signaling a shift in market activity toward property improvements rather than new builds. For the residential mortgage sector, these figures underscore ongoing inventory constraints and a potential slowdown in new home completions scheduled for later this year.

According to the latest U.S. Census Bureau data, private residential construction spending increased 1.8% year-over-year in May, marking the third consecutive month of gains. The improvement sector was the sole driver of this monthly growth, posting a 0.9% increase in spending, while remodeling expenditures specifically jumped 8.1% compared to the same period last year. This trend highlights a pivot toward reinvestment in existing housing stock as new construction starts to falter under the weight of high costs and shifting demand.

Single-family construction spending fell 0.1% in May and is down 4% on an annual basis, a decline that aligns with weakening builder sentiment captured by the NAHB and Wells Fargo Housing Market Index. Maor Greenberg, CEO of structural engineering platform Spacial, observed that the gap in single-family spending is widening, which serves as a leading indicator for the market. Greenberg noted that the current reduction in starts will inevitably lead to fewer home completions by the fall, potentially tightening the already limited supply of available housing for prospective buyers.

The broader construction market reached a total seasonally adjusted annual rate of $2.2 trillion, though private spending overall declined 2.1% year-over-year. While public construction spending rose 0.5% in May, the private nonresidential sector saw a 0.3% drop, despite significant annual growth in niche areas like data centers and religious buildings. For the residential mortgage industry, the data suggests that affordability is continuing to deteriorate as the production of new single-family homes lags behind, a reality that Greenberg suggests will be felt most acutely by middle-class consumers.