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Real Estate

Construction sees most growth since first quarter of 2016

Could signal relief to inventory-starved market

Construction growth saw a surge in the fourth quarter of 2017 to the highest level since the beginning of 2016, according to the latest release from the U.S. Bureau of Economic Analysis.

The report, Gross Domestic Product by Industry: Fourth Quarter and Annual 2017, shows which of the 22 different industry groups contributed to the 2.9% increase in GDP in the fourth quarter.

A total of 16 of the 22 groups, construction included, posted a positive contribution to GDP growth in the fourth quarter, the report showed.

After creating a pull against economic growth in the third quarter with its decrease of 1.2%, the chart below shows construction made a comeback, increasing a full 8.5% in the fourth quarter. This is the largest increase since the first quarter of 2016.

Click to Enlarge

GDP

(Source: BEA)

And real gross output, principally a measure of an industry’s sales or receipts including sales to final users in the economy and sales to other industries, increased in 18 of the 22 industry groups.

Once again, the construction industry saw a major reversal, as the chart below shows, with its turnaround from a decrease of 5.5% in the third quarter to a surge of 10.9% in the fourth quarter. This was also the largest increase since the first quarter of 2016.

Click to Enlarge

GDP

(Source: BEA)

For the real estate, rental and leasing industry, real value added increased 1.8% in 2017, after increasing 2.4% in 2016. This marked the eighth consecutive annual increase.

A recent analysis from First American Financial Corp. Chief Economist Mark Fleming shows that while housing inventory levels are low and new home starts have been a bit of a disappointment, that could soon turn around due to success in the construction industry.

“Two important trends signal that some modest relief for the housing supply shortage is on the way,” Fleming said. “The continued year-over-year growth in completions means more homes on the market in the short-term and the dramatic rise in construction employment this month indicates housing construction is likely to increase in the months ahead.”

Even as the number of new homes constructed continues to struggle, the increasing GDP within the construction industry gives hope that new home construction will soon see a surge.

In fact, at the beginning of 2018, new home sales gave the year an unexpectedly low start, however Freddie Mac explained in a report that it still believes new home sales will push the housing market forward in 2018.

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