Housing starts rise to decade high while permits decline

New-home construction rose more than projected in May to the fastest pace in more than a decade while permits cooled for a second month, indicating mixed progress in the supply-constrained housing market, government figures showed Tuesday.

Residential starts rose 5% to a 1.35 million annualized rate (the estimate was 1.31 million), the highest since July 2007. Single-family starts advanced 3.9%, while multifamily was up 7.5%. Permits, a proxy for future construction of all types of homes, fell 4.6% to a 1.3 million rate (the estimate was 1.35 million).

The increase in groundbreaking was concentrated in the Midwest, the only region to see a gain in May, as starts jumped 62.2% to 266,000 — the highest since 2006. The other three regions saw declines, though the drop was only 0.9% in the biggest area, the South.

Home starts in September reflect a slump in the South
Contractors secure a wall section on a home under construction at the Toll Brothers Inc. Cantera at Gale Ranch housing development in San Ramon, California, U.S., on Wednesday, Jan. 20, 2016. The U.S. Census Bureau reported a drop in new-home construction for December which probably reflects little more than a pause in a steady uptrend, as housing starts closed out the strongest year since 2007. Photographer: David Paul Morris/Bloomberg
David Paul Morris/Bloomberg

Permits rose in the Northeast and Midwest, consistent with the view that national demand for housing remains solid. That reflects the support that prospective buyers are getting from a strong labor market, lower taxes and improved finances.

At the same time, potential buyers are facing a squeeze on affordability as property values keep soaring and mortgage rates climb. Tariffs on lumber and other imported materials, shortages of qualified workers, and a scarcity of ready-to-build lots are all leading to elevated construction costs.

A National Association of Home Builders/Wells Fargo gauge of homebuilders' confidence fell in June to match the lowest level this year amid higher lumber prices, according to a report Monday. While U.S. gross domestic product is on track to rebound in the April-June period after a slower start to the year, residential investment has been a drag on growth for three of the past four quarters, the worst stretch since the recession ended in mid-2009.

Single-family home starts rose to a 936,000 rate, the highest since November, from 901,000 the prior month. Groundbreaking on multifamily homes, such as apartment buildings and condominiums, rose to an annual rate of 414,000 from 385,000.

Some 159,000 homes were authorized but not yet started in May, down 1.2% from the prior month; the number of homes currently under construction rose to 1.13 million, the highest since July 2007.

The report shows a wide margin of error, with a 90% chance that the May figure ranged from a 5.2% drop to a 15.2% gain. The report was released jointly by the Census Bureau and Department of Housing and Urban Development in Washington.

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