Wednesday, August 05, 2015

Q2 2015 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 8/05/2015 08:01:00 PM

The BEA released the underlying details for the Q2 advance GDP report today.

Last Thursday, the BEA reported that investment in non-residential structures decreased slightly in Q2.

The decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $112.5 billion annual rate in Q1 to a $81.1 billion annual rate in Q2.

Excluding petroleum, non-residential investment in structures increased at a 6.8% annual rate in Q2 (solid growth).

Office Investment as Percent of GDPClick on graph for larger image.

The first graph shows investment in offices, malls and lodging as a percent of GDP. Office, mall and lodging investment has increased a little recently, but from a very low level.

Investment in offices increased in Q2, is down about 33% from the recent peak (as a percent of GDP) and increasing from a very low level - and is still below the lows for previous recessions (as percent of GDP).  .

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 54% from the peak.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q2, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future.  Lodging investment peaked at 0.31% of GDP in Q3 2008 and is down about 57%.

Residential Investment Components The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Investment in single family structures is now back to being the top category for residential investment.  Home improvement was the top category for twenty consecutive quarters following the housing bust ... but now investment in single family structures has been back on top for the last 7 quarters and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $210 billion (SAAR) (almost 1.2% of GDP).

Investment in home improvement was at a $176 billion Seasonally Adjusted Annual Rate (SAAR) in Q1 (just under 1.0% of GDP).

These graphs show investment is generally increasing, but is still very low.