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Despite tight credit standards, improving housing market supports construction sector

7/3/2012 | Construction Blog, Real Estate Blog

At a recent meeting of the National Association of Realtors in Philadelphia, representatives from the housing industry expressed concern over what they called “over-tightening” of credit in the wake of the 2008 financial crisis. The result, they said, has been that too many creditworthy borrowers have become unable to qualify for mortgages. Another result has been that builders have become unable to finance even modest residential-construction efforts.

A number of other concerns were expressed at the meeting as well, including mortgage-interest tax deductions, appraisal standards, and qualified residential mortgages. The thrust of all the concerns is that the American dream of homeownership is in trouble. That being said, new data from the federal s that t government seems to show that construction spending is at a two-year high as of May.

That data, which comes from the Commerce Department, shows that an improving housing recovery is supporting the construction sector, despite the fact that public spending is weakening. Even economists in the Philadelphia area are predicting positive residential construction growth in 2012, and perhaps even commercial growth in 2013.

For those who can borrow, costs are enticing. The average rate for a 30-year fixed mortgage was at 3.66 percent at the end of June. That number is the lowest since 1971 in Freddie Mac records. In addition, the average 15-year rate fell to 2.94 percent, also a record.

Government funded construction, though, is expected to face challenges in the coming months, due to widespread budget deficits and decreased sales and property-tax revenue.

Developers and businesses looking at construction projects, if they can find the financing for them, face some favorable conditions.

Source: Bloomberg, “Construction Spending In U.S. Climbs To More Than Two-Year High,” Michelle Jamrisko, June 2, 2012