Martin Crutsinger
USA Today
WASHINGTON — Construction of new homes and apartments, after three months of declines, increased in May, helped by dry weather.
The Commerce Department said builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, up 5% from April’s pace. The better-than-expected increase came after declines of 5.5% in April, 7.5% in March and 5.9% in February.
Analysts attributed the rise to an unusually dry spring in many parts of the country, which allowed builders to start work on more homes. But they cautioned that construction activity is likely to slide 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 2.1% in May to an annual rate of 1.932 million units.
David Wyss, chief economist at Standard & Poor’s Ratings in New York, said the data showed the housing market “is holding up … better than what we had thought.”
“This suggests less of a slowing economy, and the Fed’s concern about inflation is still there. This is one more reason to jack up interest rates. This is going to be a negative for the market.”
For May, construction of new single-family homes was up 2.1% to an annual rate of 1.586 million units while construction of multifamily units was up an even stronger 19.7% to an annual rate of 371,000 units.
The strength in May was led by a 15.8% jump in construction activity in the West. Construction rose 8.5% in the South and was up 1.7% in the Northeast. However, construction fell 15.8% in the Midwest.
The National Association of Home Builders reported Monday that its builder confidence index fell in June to a reading of 42, 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 propelled by the lowest mortgage rates in four decades.
But 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 currently averages 6.63%, a full percentage point higher than a year ago. Rising mortgage rates have made it harder for some potential home buyers to qualify for loans.
David Seiders, chief economist for the home builders, says sales could fall 13% from last year’s record and construction of single-family homes is likely to drop about 9% from last year’s record level.