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New heights for construction

By Judy Martel · Bankrate.com
Wednesday, December 5, 2012
Posted: 4 pm ET

Construction spending rose to $872.1 billion in October, its highest value in three years, further stoking hopes that the housing recovery is no longer sputtering in its effort to gain traction.

Private residential construction rose to $294.24 billion, its highest level since November 2008, while private nonresidential construction, including offices and manufacturing, also rose, to $297.85 billion.

The overall spending marked the sixth straight month of increases, according to the Commerce Department, which issued the report. Combined with positive reports recently on home sales and prices, the housing market is finally contributing to the growth of GDP instead of being a drag on the weak economy. Many experts expect the growth, while still much smaller than before the recession, to continue into 2013.

"This is another indicator that the housing recovery has turned the corner and will continue," says Rick Sharga, executive vice president of Carrington Mortgage Holdings in Santa Ana, Calif. Part of the reason for optimism, he says, is that the news is taken in context with what we're seeing throughout the housing market since the recession. "If this report had come out in 2006, it probably would have been a false indicator because they would have been still building even though the market was slowing."

But the positive outlook for a recovery is still overshadowed by fears about the "fiscal cliff," with its lethal combination of possible tax-deduction eliminations and tax increases, which could stall the momentum.

Sharga notes that if the fiscal cliff triggers another recession, the housing market would be "devastated" by possible unemployment and lack of discretionary income among potential homebuyers. There's still a backlog of distressed homes, he says, so the budding housing recovery could be shaken off its foundation by any bad economic news. "And it would be a double whammy for builders because they're building on anticipated finances, so the fiscal cliff would definitely have repercussions for those companies and for the rest of the economy."

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