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, McGraw-Hill Construction said today.
October showed a moderate decline for the housing sector, offset by gains for nonresidential building and nonbuilding construction (public works and electric utilities), according to McGraw-Hill Construction, a division of The McGraw-Hill Cos.
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 company said.
With mortgage rates now edging up, “there’s the growing sense that single-family housing may be rounding a peak,” said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction.
“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 home building,” Murray said.
For total construction to stay close to current levels, further expansion will be needed from both the nonresidential and public works sectors, Murray said. He said 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,” Murray said.
Nonresidential buildingin October rebounded 8 percent to $176.3 billion (annual rate), the company said. The commercial sector was mixed in October, the company said.
Nonbuilding construction, at $110.2 billion (annual rate), advanced 13 percent in October.
Residential buildingin October slipped 6 percent to $381.9 billion (annual rate), the company said. While down from September’s elevated pace, October was still 2 percent higher than the average for the previous nine months, according to McGraw-Hill.
Single-family housing in October retreated 5 percent, as this robust market appears to be settling back very gradually, the company said. 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 is expected to move higher in coming months, and this will likely dampen demand for housing during 2006, the company said.
Multifamily housing in October dropped 8 percent from a very strong September, according to McGraw-Hill. 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, the company said.
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, the company said. 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.
The 9 percent gain for total construction during the first ten months of 2005 reflected the following performance by major sector – residential building, up 14 percent; nonbuilding construction, up 8 percent; and nonresidential building, up 1 percent, the company said.
The slight increase for nonresidential building is noteworthy, as its year-to- date comparison finally turned positive after trailing 2004 for most of the current year, according to the company. By geography, total construction during the first ten months of 2005 showed the South Atlantic, up 13 percent; the West, up 11 percent; the Northeast, up 9 percent; the South Central, up 8 percent; and the Midwest, up 2 percent, the company said.
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