Housing Starts in U.S. Fall 4.8% in May on Apartments

Housing Starts in U.S. Probably Climbed in May on Lower Rates
A Toll Brothers Inc. home under construction, in Randolph, New Jersey, on June 14, 2012. Photographer: Emile Wamsteker/Bloomberg

Builders broke ground on more single-family houses for a third consecutive month in May and rising construction permits pointed to further gains, showing the residential real-estate market is weathering the U.S. economic slowdown.

Work began on 516,000 one-family houses at an annual rate last month, up 3.2 percent from April and the most this year, the Commerce Department reported today in Washington. A slump in construction of apartments, which is often volatile, led to an unexpected drop in total housing starts.

Building permits, a proxy for future construction, climbed to the highest level since September 2008, showing the combination of lower prices and record-low mortgage rates is underpinning demand and encouraging new projects. Toll Brothers Inc. is among homebuilders benefiting from an improving housing market on rising demand for move-up homes.

“We saw a very strong number in new permits, indicating builders are seeing improving demand,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. The report “was a lot better than the headline number would suggest.”

Total starts dropped 4.8 percent to a 708,000 annual pace in May from a revised 744,000 rate in the prior month that was the highest since October 2008, today’s report showed. The median forecast of 77 economists surveyed by Bloomberg News called for a 722,000 rate. Estimates ranged from 685,000 to 750,000.

Building permits increased 7.9 percent to a 780,000 annual rate, reflecting gains in single-family and multifamily homes.

Stocks Climb

Stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as the Federal Reserve began a two-day meeting to decide whether more monetary stimulus is needed to spur the world’s largest economy. The S&P 500 climbed 1 percent to 1,357.98 at the close in New York.

Elsewhere, a report showed German investor confidence fell in June by the most in 14 years as Europe’s sovereign debt crisis weighed on the economic outlook. In China, the commerce minister said the nation’s economy is heading for a rebound this month following government measures to support growth.

U.S. housing starts were up 26 percent in the 12 months ended in May unadjusted for seasonal variations, today’s report from the Commerce Department showed.

Work on apartment buildings and other multifamily units decreased 21 percent to an annual rate of 192,000 in May, the slowest this year, from 244,000 a month earlier.

By Region

Three of four regions had a decrease in overall starts in May, including a 13 percent decline in the Midwest and a 20 percent drop in the Northeast. Starts in the West rose 14 percent.

A report yesterday showed confidence among U.S. homebuilders climbed in June to a five-year high. The Washington-based National Association of Home Builders/Wells Fargo index of sentiment rose by 1 point to 29, the highest since May 2007.

Cheaper homes, low mortgage rates and enough of an increase in household income drove housing affordability to an all-time high in the first quarter, according to the National Association of Realtors.

Borrowing costs are near historic lows. The average 30-year, fixed mortgage rate reached a record low of 3.67 percent in the first week of June, according to Freddie Mac.

Another reason for optimism on the outlook for construction is that Americans are forming households faster than new homes are being built, said Douglas Yearley, chief executive officer of Toll Brothers, a luxury homebuilder based in Horsham, Pennsylvania.

Borrowing Costs

“There is huge pent-up demand that has built over the last four years from this imbalance,” Yearley said at a June 14 conference. “It’s been seven years since this all began to turn down and you have people that are just ready to move on with their lives, take advantage of great interest rates.”

At the same time, three years after the end of the last recession, hurdles remain for residential real estate. More distressed properties are going on the market, adding to inventory and pushing down prices.

Foreclosure starts grew in May on an annual basis for the first time since January 2010, after the largest U.S. loan servicers settled with states over faulty documentation, according to a report last week from RealtyTrac Inc., a real estate data provider in Irvine, California. Home seizures plunged 18 percent from a year earlier, the report also showed, a sign that banks are turning to repossession alternatives, RealtyTrac Inc. said today.

Labor Market

Weak job gains and stock market volatility also have consumers apprehensive about taking on debt.

The number of job openings in the U.S. fell by 325,000 to 3.42 million in April, the fewest since November, Labor Department figures showed today.

“Our forecast is still for growth but we’re being conservative about it,” said Doug Duncan, chief economist at Washington-based Fannie Mae. “This will definitely be a year where we’ll see growth in the housing market.”

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