Monday, March 04, 2019

Q4 2018 GDP Details on Residential and Commercial Real Estate

by Calculated Risk on 3/04/2019 01:22:00 PM

The BEA has released the underlying details for the Q4 initial GDP report.

The BEA reported that investment in non-residential structures decreased at a 4.2% annual pace in Q4.  Investment in petroleum and natural gas exploration increased in Q4 compared to Q3, and has increased substantially recently (although this may change with the recent decline in oil prices).

Without the increase in petroleum and natural gas exploration, non-residential investment would only be up about 5% year-over-year.

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.

Investment in offices increased in Q4, and is up 12% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down about 15% year-over-year in Q4.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q4, and lodging investment is up 16% 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 five consecutive years following the housing bust ... but now investment in single family structures has been back on top for the last six years - although single family investment has been down a little recently.

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 some further increase.

Investment in single family structures was $278 billion (SAAR) (about 1.3% of GDP), and was down in Q4 compared to Q3.

Investment in multi-family structures increased in Q4.

Investment in home improvement was at a $270 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.3% of GDP).  Home improvement spending has been solid.