Tuesday June 16, 08:34 PM
US housing construction leaps from all-time lows
By Veronica Smith
WASHINGTON (AFP) - US housing construction rebounded with a vengeance in May from all-time lows, official data showed Tuesday, stoking hopes the real-estate crisis at the heart of the recession may be easing.
The Commerce Department reported construction starts on privately owned homes vaulted 17.2 percent in May from the prior month to a seasonally adjusted annual rate of 532,000, marking a third consecutive month of gains.
It was sharply higher than the 485,000 expected by analysts, but was 45.2 percent lower than a year ago.
Building permits, an indicator of future activity, leapt to a seasonally adjusted annual rate of 518,000, an increase of 4.0 percent from April.
The pace topped analysts' consensus forecast of a rate of 508,000 permits.
On an annual basis, building permits in May were 47.0 percent below the May 2008 level.
"Even as we see important glimmers of light like today?s increases, we have not yet seen consistent gains," Rebecca Blank, under secretary for economic affairs at the Commerce Department, said in a statement. "The economic environment remains difficult."
Construction activity had hit bottom in April, data showed, with starts and permits at their lowest levels since tracking of the numbers began in 1959 and 1960, respectively.
Analysts said the May data signals recovery may be taking shape in the ailing housing market, where foreclosures are spiking, home prices continue to fall and a glut of unsold homes remains on the market.
"Overall, this was a good report," said Patrick Newport of IHS Global Insight.
"Based on May's numbers, we should continue to see improving housing starts numbers nationally and across all four regions over the next two months," Newport (NASDAQ: NEWP - news) said.
Ian Shepherdson, chief US economist at High Frequency Economics, agreed.
"The inventory overhang means any recovery in building will be very muted for an extended period but at least the very worst is over," Shepherdson said.
Single-family housing starts and building permits drove the surprisingly strong May increases. Single-family homes dominate the US housing sector and are key to a recovery from the collapse of a housing bubble that burst nearly three years ago.
The number of permits authorized to build single-family homes climbed for the second month running, by 7.9 percent in May after 5.0 percent in April, the Commerce Department said. Starts were 7.5 percent higher in May.
"Single-family starts will continue to improve, but the recovery will be a slow one, lasting two to three years," predicted IHS Global Insight's Newport.
Building permits in the smaller multi-family housing sector continued to decline, by 8.3 percent, after plunging 20.5 percent in April.
Newport said the details on the multi-family construction market were "troubling," revealing the continued credit gridlock in the US financial system despite billions of taxpayer dollars injected to stimulate lending.
He noted that multi-family permits were in "the 11th consecutive monthly decline, to a record low of 110,000 units" in May at an annual rate.
"The recent sharp decline in this market is related to financing. Some builders are overwhelmed with debt. Others cannot find funding to finance projects with positive net present values," he said.
Ryan Sweet of Moody's Economy.com warned that rising interest rates could throttle momentum in the housing market.
"The recent increase in mortgage rates is disconcerting, as it may keep potential homebuyers away, which could take another leg out of home sales," Sweet said.
The American Bankers Association's economic advisory committee said Tuesday it sees home values improving modestly in 2010.
"Lower prices and low mortgage rates have greatly improved the affordability of homes," said panel head Bruce Kasman, chief economist at JPMorgan Chase.
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