Housing starts surge most since 2016, exceeding all estimates

U.S. housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting residential construction is on track to help fuel economic growth.

Beginning home construction jumped 21.7% to a 1.63 million annualized rate, the fastest pace in more than a year, according to government data released Tuesday. The pace exceeded all projections in a Bloomberg survey of economists. Single-family homebuilding rose 18.5% to an 11-month high.

Applications to build, a proxy for future construction, climbed 5.2% to an annualized rate of 1.49 million units. Permits for one-family dwellings increased.

David Paul Morris/Bloomberg

The figures corroborate Federal Reserve Chair Jerome Powell's comments last week that the housing market has shown signs of stabilizing. Homebuilders, which are responding to limited inventory in the resale market, have grown more upbeat as demand firms, materials costs retreat and supply-chain pressures ease.

The housing starts data will feed into economists' estimates of home construction's impact on second-quarter gross domestic product. Prior to the report, the Atlanta Fed's GDPNow forecast had residential investment subtracting about 0.1 percentage point from gross domestic product. Homebuilding last contributed to growth in the first quarter of 2021.

At the same time, elevated mortgage rates are crimping affordability, suggesting limited momentum in housing demand. 

The increase in starts from a month earlier was the biggest since October 2016 and reflected gains in three of four US regions. Starts of apartment buildings and other multifamily projects jumped more than 27%.

The number of homes completed increased to a 1.52 million annualized rate. The level of one-family properties under construction were little changed at 695,000.

Existing-home sales data for May will be released on Thursday, while a report on new-home purchases is due next week.