Construction Of New Homes Rebounds In May

Dry weather helps fuel increase. However, permits slip, and builder confidence at 11-year low.

WASHINGTON (AP) - Construction of new homes and apartments, after posting three straight months of declines, increased in May, helped by dry weather.

The Commerce Department reported that builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, an increase of 5 percent from the April construction pace. The better-than-expected increase came after declines of 5.5 percent in April, 7.5 percent in March and 5.9 percent in February.

Analysts attributed the increase to an unusually dry spring in many parts of the country which allowed builders to start work on more new homes. But they cautioned that construction activity is likely to slide further in coming months as the housing industry slows under the impact of rising mortgage rates.

In a sign of that expected slowdown, permits for new construction dropped by 2.1 percent in May to an annual rate of 1.932 million units.

For May, construction of new single-family homes was up 2.1 percent to an annual rate of 1.586 million units while construction of multifamily units was up an even stronger 19.7 percent to an annual rate of 371,000 units.

The strength in May was led by a 15.8 percent jump in construction activity in the West. Construction rose by 8.5 percent in the South and was up by 1.7 percent in the Northeast. However, construction fell by 15.8 percent in the Midwest.

The National Association of Home Builders reported Monday that its builder confidence index fell in June to a reading of 42, the lowest point in 11 years.

The housing industry set record sales of both new and existing homes for five straight years as home buying was boosted by the lowest mortgage rates in four decades.

However, rates have been rising steadily this year as the Federal Reserve keeps tightening credit in an effort to keep inflation under control. The 30-year mortgage is currently at 6.63 percent, a full percentage point higher than a year ago. Rising mortgage rates have made it harder for potential home buyers to qualify for loans.

David Seiders, chief economist for the home builders, said that sales could fall by 13 percent from last year's record and that construction of single-family homes is likely to drop by about 9 percent from last year's record level.

More in Supply Chain