Monthly housing starts rebound in May

WASHINGTON (MarketWatch) — Construction of new U.S. homes rebounded in May on the back of more apartment construction, according to government reports released Tuesday that signal continued healthy activity in the building sector despite higher mortgage rates.

Housing starts rose 6.8% in May to a seasonally adjusted annual rate of 914,000 — after a big drop in the volatile apartment segment had pushed down starts in April, according to data from the U.S. Commerce Department.



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Starts for single-family homes increased 0.3% in May to a seasonally adjusted annual rate of 599,000, while starts for structures with at least five units rebounded 21.6% to a rate of 315,000.

Economists had expected a greater rebound in May. The consensus forecast of analysts polled by MarketWatch had forecast overall home-construction starts in May to increase to a rate of 953,000 from a prior April estimate of 853,000. See MarketWatch’s comprehensive economic calendar.

Starts had pushed above the one-million-unit mark in March for the first time since June 2008.

Also Tuesday, the government reported that building permits, a sign of future demand, fell 3.1% in May to a rate of 974,000. Economists had expected the decline which comes after a strong 12.9% gain in the prior months.

But the key single-family-home permits rose 1.3% in May to 622,000 units.

Longer-term trends pointed to rebounding activity, with overall home-construction starts in May up 28.6% from the same period in the prior year. Permits were up 20.8% from the same period in the prior year.

On Monday, data signaled that home builders are growing more confident. The National Association of Home Builders index of home builder sentiment rose to a post-recession high of 52 in June from 44 in May.

Higher mortgage rates may slow down building permits later in the summer. But new home construction may ride the tide of higher mortgage rates, because the inventory of new homes available for sale is running well below average, said Michael Gregory, senior economist at BMO Capital Markets in Toronto.

Home building is an important economic driver, and residential investment is expected to continue to contribute to growth this year. The housing market has strengthened over the past year, benefiting from high affordability and an economy that is adding jobs. In fact, with greater demand, builders have been able to raise prices.

In a separate report, the Labor Department said consumer prices rose 0.1% in May and core prices, excluding food and energy costs, rose 0.2%.

For more related topics, visit Real Estate Investment 101.

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