U.S. Housing Starts Soared in May; Permits Also Rose

By Shobhana Chandra

June 16 (Bloomberg) -- U.S. builders broke ground on more houses than forecast in May, offering a sign that the industry’s slump, now in its fourth year, may be approaching an end.

The 17 percent increase in housing starts to an annual rate of 532,000 followed a 454,000 pace the prior month, the Commerce Department said today in Washington. Building permits, an indicator of future construction, also rose more than estimated.

Lower prices and tax incentives are attracting buyers, potentially laying the groundwork for housing to rebound and reduce its drag on the economy. Still, rising unemployment is causing many Americans to hold off on big purchases and foreclosures continue to mount, so a sustained homebuilding recovery may take longer to emerge, analysts say.

“It’s fair to say that we have found a bottom in housing, though the concern is that the bottom is at a very low level,” said Zach Pandl, an economist at Nomura Securities International Inc. in New York. “We have a long way to go to reach more normal levels of activity.”

A separate report today showed that U.S. wholesale prices rose less than anticipated in May as food costs dropped. The Labor Department reported that its producer price index, on an annual basis, fell 5 percent last month, the biggest slide in half a century.

Stocks, Treasuries

U.S. stock futures extended gains after the housing report, indicating the Standard & Poor’s 500 Index may rebound from its biggest drop in a month. Futures on the Standard & Poor’s 500 Stock Index rose 0.4 percent to 923.10 at 9:08 a.m. in New York. Treasuries fell, with benchmark 10-year note yields rising to 3.74 percent from 3.71 percent late yesterday.

Housing starts were projected to rise to a 485,000 annual pace, after a previously reported 458,000 the prior month, according to the median forecast of 71 economists surveyed by Bloomberg News. Estimates ranged from 450,000 to 600,000.

Permits rose 4 percent to a 518,000 pace from a 498,000 rate the previous month. They were forecast to increase to a 508,000 annual rate.

Construction of single-family homes rose 7.5 percent to a 401,000 rate, the third straight monthly gain. Work on multifamily homes, such as townhouses and apartment buildings, jumped 62 percent to an annual rate of 131,000.

Regional Breakdown

The increase in starts was led by a 29 percent jump in the West and a 17 percent increase in the South. They rose 11 percent in the Midwest and 2 percent in the Northeast.

Home starts have still plunged 45 percent from a year earlier, today’s report showed, and are down from a peak annual rate of 2.27 million in January 2006, which capped the biggest housing boom in six decades.

Other recent reports show combined sales of new and existing homes increased in April, and the number of Americans signing contracts to buy previously owned homes rose for the third straight month.

Falling prices are bringing homes within reach of more consumers, and the Obama administration’s economic stimulus plan included an $8,000 tax credit for first-time buyers for purchases completed before Dec. 1.

Builders continue to face competition from existing properties. Mortgage delinquencies and foreclosures jumped to records in the first quarter, according to the Mortgage Bankers Association. One in eight Americans is now late on a payment or in foreclosure.

Mortgage Rates

Mortgage rates have climbed, even as the Federal Reserve works to trim borrowing costs by purchasing Treasuries and keeping the benchmark interest rate close to zero.

The average rate on a 30-year home loan surged to 5.57 percent in the week ended June 5, the highest since November, according to the mortgage bankers group. That’s up from a record-low level in late March.

Toll Brothers, the largest luxury homebuilder, and Hovnanian, New Jersey’s biggest builder, this month reported quarterly losses as revenue plunged. Still, the companies narrowed their losses from a year earlier.

“Some buyers are beginning to re-enter the new home market,” Robert Toll, chairman and chief executive officer of Toll, said in a June 3 statement. “Cancellations appear to be leveling off” even as “concerns about job security and the economy continue to inhibit traffic,” he said.

To contact the reporter on this story: Shobhana Chandra in Washington schandra1@bloomberg.net