Real residential investment in the U.S. is projected to decline by 4.8 percent in the third quarter, whereas nonresidential spending will remain stable, according to Oxford Economics, which provided this analysis after the release of the official construction spending data for July.
The Commerce Department's report indicated that construction spending dropped by 0.3 percent to an annual rate of $2.163 trillion in July, contrary to economists' predictions of no change.
"Housing is emerging as the primary hindrance within private fixed investment," said Bernard Yaros, an economist at Oxford Economics. "We anticipate that real residential spending in the third quarter will decrease by an annualized 4.8 percent, detracting 0.2 percentage points from GDP growth."
This follows a 2 percent decline observed in the second quarter.
"With decreases in both private residential and nonresidential investments, our current projection for Q3 GDP growth has been adjusted downwards from an annualized 2.3 percent to 2 percent," Yaros noted.
Despite the stable predictions for nonresidential structures investment for Q3, Yaros expressed concerns over the Q4 outlook due to increasing election-related policy uncertainty.
Oxford Economics forecasts that the third quarter will mark the lowest point for the housing sector, anticipating a market recovery in the fourth quarter.
As the Federal Reserve is expected to begin cutting interest rates in September, mortgage rates should decrease further, potentially stimulating more sales activity and contributing to GDP growth through broker commissions, Yaros explained.
"Lower rates will bolster homebuilder sentiment regarding prospective buyer traffic and encourage builders to initiate new single-family projects, especially as homeowner vacancy rates approach record lows," Yaros added. "Trends such as aging in place and remote work will continue to support home improvement spending."
