Spending on construction rose in August due to an increase in state and local government spending, giving a 1.4% gain which reversed the 1.4% loss in July. The construction industry is also up 1.4% compared to July 2010 which is its first positive reading of the year.
Building of multi-family homes such as townhouses and apartments has increased, which is greater evidence of how the housing market has changed as more Americans are choosing to rent rather than buy. Even so, spending on public construction was down 5.3% compared to August 2010 which is mainly due to budget cuts.
The housing market continues to struggle, and work began on 571,000 new homes in August which is the weakest figure for three months. Most experts don't expect the housing market to improve in the near future, and purchases of new homes reached a six-month low in August even though prices fell by an average of 7.7% compared to August 2010 which is the largest fall since July 2009. The problem is that distressed properties still appear far more tempting to potential buyers.
The Federal Reserve is aiming to cut borrowing costs and to kick start housing and refinancing, and last month it announced it would take additional steps to reinvest maturing mortgage debt into mortgage backed securities instead of Treasuries. However government agencies remain under pressure to cut their spending, especially as property tax collections which is the main source of income for many cities and counties fell by 1.2% during the second quarter, which is the third consecutive decline.
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