Builder spending up in December, economy improving

Increased demand from buyers for new homes has generated, as the inventory of existing-homes for sale has shrunken greatly thanks to affordable conditions offered throughout much of 2012. This has also resulted in increased spending on construction, as highlighted in a recent report from the Commerce Department.

Increased demand from buyers for new homes has generated, as the inventory of existing-homes for sale has shrunken greatly thanks to affordable conditions offered throughout much of 2012. This has also resulted in increased spending on construction, as highlighted in a recent report from the Commerce Department.

According to the report, construction spending increased 0.9 percent to a $885 billion annual rate, marking the highest level seen since August 2009. To many economists' surprise, spending also jumped 0.1 percent from the previous month. Economists from Bloomberg expected a 0.7 percent increase while those surveyed by Dow Jones Newswires called for a 0.6 percent gain. 

On a year-over-year basis, construction spending jumped 9.2 percent, noted as the first year-over-year gain since before the start of the recession. 

When looking at private residential construction, spending increased 2.2 percent in December reaching $308.15 billion in the final month of the year. Money spent on private home-building went up 16.8 percent for all of 2012, a significant improvement from the 0.8 percent drop in spending seen in 2011.

"When we see volumes pick up, that makes homebuilders feel more comfortable about going out and creating new houses because they feel like the market's starting to pick up," Andres Garcia Amaya, a market strategist at JPMorgan Investment Management told Bloomberg. "There's just not enough houses out there for people to buy."

In addition, public construction spending dropped according to the real estate records, slipping 1.4 percent to $270.1 billion in December. The Commerce Department said this was the lowest level since 2006, despite being lowest spending amount since 2006.

Increased spending paired with affordability by low mortgage rates has helped enable more Americans to afford new construction with looking to make the investment and become homeowners. The increase in sales also helped boost home prices which should be interpreted as positive growth, as rising prices and activity mean the market is becoming more healthy.

Improving factors also provide consumers with more confidence, though many economists expected a dip in interests after many prospective buyers witnessed the housing market slump. When buyers, sellers and homebuilders are more optimistic about the housing market and the overall economy, sales tend to rise while spending also moves forward.

 



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