Housing Starts Ease, but Sector Is Strong

U.S. home construction fell less than expected last month and may put in the second-best year in more than a decade, a sign housing still is giving support to an otherwise sagging economy.

Builders started new homes at an annual rate of 1.622 million units in May compared with a pace of 1.629 million in April, the Commerce Department reported Tuesday. Starts so far this year have averaged 1.626 million units at an annual rate. If that holds, it would be the second-best for starts since 1986, following only the level set in 1999.

Orders for homes and backlogs of houses not yet started are rising at U.S. home builders, so construction may continue at this level in coming months. Housing has remained resilient while other areas of the economy, such as manufacturing, have slumped.

“As sales continue to rise, hitting new highs, builders will become more confident that the housing market will remain largely immune to the problems in the rest of the economy and starts will rise substantially,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

Analysts expected starts to fall 1.2%, three times more than the actual decline.

Starts of single-family homes fell 0.2% in May to a 1.291 million-unit rate after rising 7% the previous month. Starts of apartments, townhouses and other multifamily homes fell 1.5% to a 331,000 annual rate after a 12.5% decrease in April.

New construction fell 28.3% in the Northeast, the biggest drop since December 1990. Starts also fell in the South and rose in the Midwest and the West.

Building permits, an indicator of future construction, rose 2.1%.

“With permits on top of starts, this is often a good sign that starts are very firm and will hold up well,” said Kenneth Mayland, chief economist at Clear View Economics in Pepper Pike, Ohio.

Builders say demand remains resilient. The National Assn. of Home Builders’ housing market index rose in June to its highest level in three months.

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Housing Starts

Seasonally adjusted annual rate, millions of units:

May: 1.62 million

Source: Commerce Department