US construction spending at its lowest since 2023, building stocks give way

The short version

• American construction spending fell 0.5 percent in July and stands at its lowest level since October 2023.
• The American target range has stood unchanged at 3.50 to 3.75 percent since the start of the year, in Norway the key rate is 4.25 percent.
• Developers often finance land, planning and construction two to four years in advance before the first sale proceeds arrive.

The lowest level since October 2023

American construction spending fell 0.5 percent in July and therefore stands at its lowest level since October 2023. Housing stocks gave way as a result.

The connection is direct. Whoever builds finances, and whoever finances pays interest. The American target range has stood unchanged at 3.50 to 3.75 percent since the start of the year.

What the rate does to developers

For developers a second effect comes on top. They finance land, planning and construction in advance, often over two to four years, before the first sale proceeds arrive. If rates rise during that time, the margin shrinks without anything having changed in construction costs or the selling price.

The same picture in Norway

An observation that can be seen elsewhere fits with that. In Norway the central bank likewise reports low housing construction and house prices falling more strongly than expected. There the key rate is 4.25 percent.

The time lag

The time lag matters. What is not started today is missing not today but in three to five years.

Assessment

A monthly reading of minus 0.5 percent is little in itself. The lowest level since October 2023 is the more meaningful figure, because it describes not a dip but a level.

What is uncomfortable about it only takes effect later. Building projects that are dropped now will be missing from the market exactly when rates have fallen again and demand returns. Relief on prices today turns into scarcity later.

For the central bank the figure is an argument in favour of restraint. Construction traditionally reacts to rates as one of the first industries, and it is reporting in right now.

Frequently asked questions

How far did construction spending fall

By 0.5 percent in July. That puts it at its lowest level since October 2023. Housing stocks gave way as a result.

What does affordability mean

For buyers it is not the purchase price that counts but the monthly instalment they can carry. If the rate rises, the instalment rises at the same price. For the sum to work again, either the price has to fall or the buyer has to go without.

Why does the decline only take effect in a few years

Because time passes between the start and completion. What is not started today is missing not today but in three to five years. Building projects that are dropped now will be missing from the market exactly when rates have fallen again and demand returns.

This analysis is for information only and is not investment advice.