Construction spending is down
According to the Department of Commerce, construction spending dropped 1.4% in February for a third month in a row of declining spending. The value of all projects is at its lowest since October 1999 and the spending pace is at its weakest point since April 1997.
Homebuilders’ construction spending decreased 3.7% and new home sales, permits, starts and stocks are at historic lows.
Builders hedging their bets
Despite the disastrous news for the new home sector, several “homebuilders are buying expensive land that threatens to squeeze their margins further,” according to Reuters.
Helen Chirnikoff writes, “Builders hope a housing market recovery will justify their investment, but in the meantime, to stay in business they must buy land and build on it in the knowledge that profits are going to be scarce even in so-called “healthy” markets.”
Maybe it’s not the worst bet given that the S&P Case-Shiller shows a decline in home prices in all markets but San Diego and Washington, D.C. where expensive land buys could help a national builder carry their lagging markets.
