Friday, October 30, 2015

Q3 2015 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 10/30/2015 05:33:00 PM

The BEA released the underlying details for the Q3 advance GDP report today.

Yesterday, the BEA reported that investment in non-residential structures decreased slightly in Q3.

The decline was due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration declined from a $88.6 billion annual rate in Q2 to a $75.0 billion annual rate in Q3.  "Mining exploration, shafts, and wells" investment is down 49% year-over-year.

Excluding petroleum, non-residential investment in structures increased solidly in Q3.

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 Q3, and is up 24% year-over-year -increasing from a very low level - and is still near the lows for previous recessions (as percent of GDP).  .

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is up slightly year-over-year.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased further in Q3, and with the hotel occupancy rate near record levels, it is likely that hotel investment will increase further in the near future.  Lodging investment is up 39% year-over-year.

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).

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 $211 billion (SAAR) (about 1.2% of GDP).

Investment in home improvement was at a $178 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.