The homebuilding industry enjoyed its best two months in more than seven years as it headed into its busiest season, even as it began work on fewer houses last month following an April surge.
While housing starts declined 11.1% to a 1.04 million annualized rate it followed April's revised 1.17 million pace to cap the best back-to-back readings since the last two months of 2007, the Commerce Department reported Tuesday in Washington. The median estimate of 81 economists surveyed by Bloomberg called for 1.09 million. Permits for future projects climbed to the highest level in almost eight years, indicating activity will probably pick up.
The data show the residential real estate market was sustaining gains after sporadic advances earlier in the year that reflected bad weather and a slump in overall U.S. growth. Hiring momentum and bigger paychecks amid still-cheap borrowing costs are brightening Americans' moods and could lift home purchases in the second half of 2015.
"A big decline was almost inevitable after such a surge in April," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., whose forecast for 1.05 million starts was among the closest in the Bloomberg survey. "With the labor market continuing to improve and unemployment coming down, overall conditions for housing should remain pretty favorable."
Stock-index futures declined, signaling equities will slide for a third day, as the Federal Reserve begins a two-day meeting and investors watch for progress in negotiations between Greece and its creditors. The contract on the Standard & Poor's 500 Index maturing in September fell 0.2% to 2,072 at 9:06 a.m. in New York.
Estimates for starts in the Bloomberg survey ranged from 1.02 million to 1.16 million.
The 11.1% drop in housing starts last month followed a 22.1% surge in April that was the biggest since January 1990 as the industry recovered from the bitter winter weather.
Building permits increased 11.8% to a 1.28 million annualized pace, the most since August 2007. They were projected to fall to 1.1 million, according to the Bloomberg survey median.
Work on single-family properties declined 5.4% to a 680,000 rate in May from 719,000 the prior month. Construction of multifamily projects such as condominiums and apartment buildings, which can be volatile, dropped 20.2% to an annual rate of 356,000.
Construction decreased in all four regions, led by a 26.5% slump in the Northeast.
The starts data were in line with a report Monday showing builder confidence rose in June to a nine-month high. Sentiment increased in an all four U.S. regions and the sales outlook was the best since October 2005, the National Association of Home Builders/Wells Fargo gauge showed.
April housing data showed industry momentum was spotty at the start of the spring selling period. Purchases of new homes rose more than projected, increasing 6.8% to a 517,000 annualized pace from a 484,000 rate the prior month, according to Commerce Department figures.
Sales of existing homes unexpectedly fell 3.3% to a 5.04 million annualized rate after a 5.21 million pace in March that was the strongest in almost two years, National Association of Realtors figures showed.
Relatively cheap borrowing costs are still supporting homebuyers. The average rate on a 30-year fixed mortgage was 4.04% in the week ended June 11, according to data from Freddie Mac. That's still below the average 6.06% in the last five years of the economic expansion that ended in December 2007, when the housing market boomed.
Further labor-market progress should keep up expectations for gains in housing and the broader economy. Employers added 280,000 jobs in May, the most in five months, after a 221,000 April advance. An increase in the number of people entering the labor force caused the jobless rate to creep up to 5.5% from 5.4%, which was the lowest since May 2008.
