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Last Updated: Wednesday, 1 February 2006, 17:51 GMT
Record US outlay on construction
Houses in San Francisco
The housing market has been expanding at breakneck pace
The US housing boom, fuelled by low mortgage rates, led to record spending on construction last year.

More than 1.19 trillion (669bn) was spent on building projects last year, 9% higher than in 2004, according to the Department of Commerce.

Low borrowing rates have persuaded Americans to invest heavily in property. Spending on residential construction rose 11% to $626bn.

Most economists believe the housing market will start to slow this year.

Cooling down?

Interest rates have risen from 1% to 4.5% over the past eighteen months as the Federal Reserve has tried to let some of the steam out of the housing market.

At least one more rate rise is expected soon under the leadership of Ben Bernanke, who was sworn in as the new Fed chairman on Wednesday.

One has to wonder if another round of rate hikes will lead to a more severe cutback in consumer spending
Bernard Baumohl, Economic Outlook Group

2005 saw a significant rise in both private and publicly-funded construction.

The value of private construction rose 9% to $872bn as US consumers ignored rising energy costs and other economic pressures to continue their recent building spree.

Public sector spending, meanwhile, increased 7.7% to $247bn.

Despite robust economic growth and strong consumer confidence, some commentators have warned that US household finances are becoming increasingly strained.

Wages, adjusted for inflation, fell 0.8% last year, curbing individuals' purchasing power at a time of rising energy bills.

Some experts fear further upward movement on interest rates could hurt the housing market.

"One has to wonder if another round of rate hikes will lead to a more severe cutback in consumer spending," said Bernard Baumohl, executive director at the Economic Outlook Group.


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