Housing starts jump 17% in May; wholesale inflation tame
— -- Housing starts shot up 17.2% in May compared with April in a sign that construction of single-family homes has begun a modest turnaround that could bolster an economic recovery by year's end.
Construction of homes and apartments rose to a seasonally adjusted annual rate of 532,000 in May after hitting an all-time low in April, the Commerce Department said Tuesday. That soundly beat analysts' estimates of 485,000.
Building-permit applications increased 4% to a seasonally adjusted annual pace of 518,000.
Most significant was a 7.5% increase in single-family starts to an annualized rate of 401,000, the highest since November. That's still low by historical standards. But home starts have risen steadily since bottoming in January.
"It's really hard for someone to sell a new home," says Patrick Newport, an economist at IHS Global Insight. "You're competing in markets where foreclosed homes are selling at fire-sale prices."
Still, housing investment should start contributing positively to the nation's gross domestic product by the fourth quarter, Newport says.
Much of the May increase in new residential building stemmed from a 62% jump in multifamily starts to 131,000. However, construction of apartments and condominiums reached a record low of 81,000 in April, and May's totals are still well below levels of two months ago. Also, multifamily totals swing wildly and don't reflect a severe slump in that segment, Newport says.
Multifamily building permits, a more reliable indicator, fell 8.3%, the 11th monthly decline in a row. Construction of apartments and condos has been hampered by a credit crisis that has prevented builders from obtaining financing. Wachovia senior economist Mark Vitner also points to "widespread overbuilding of condominiums and town homes and rising vacancy rates for rental apartments."
Single-family-home permits, however, rose 7.9% to a rate of 408,000. Permit totals exceeding starts indicates starts should continue to move upward in coming months. "That's what gives us confidence that a bottom has been reached," Vitner says.
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