Housing Starts Rise 0.2% in May

U.S. housing starts rose 0.2% in May as low mortgage rates and an improved job market kept home builders on pace for their best year since 1978.

Builders broke ground at an annual rate of 2.009 million housing units last month, the most since February, after 2.005 million in April, the Commerce Department said Thursday. New claims for unemployment benefits rose last week, and manufacturing contracted in the Philadelphia region this month for the first time in two years, other reports showed.

The housing starts add to evidence of strength in real estate as home sales head for a fifth straight record year amid escalating prices that prompted Federal Reserve Chairman Alan Greenspan to worry about speculative “froth.”

Workers are finding jobs, tame inflation is giving them more spending power and mortgage rates linked to 10-year Treasury note yields are staying low even as the Fed raises short-term rates.

The number of U.S. workers filing initial applications for unemployment benefits rose by 1,000 last week to 333,000, the Labor Department said. The level remained consistent with gradual improvement in the job market.

The Federal Reserve Bank of Philadelphia reported that its regional factory index for June fell to minus 2.2. It was the first negative reading, signifying contraction, since May 2003. A report this week from the New York Fed showed expansion. The Philadelphia Fed’s outlook index for six months from now rose to 30.6, the highest this year, indicating the slowdown may be temporary.

Building permits, a sign of future construction, fell 4.6% in May to an annual rate of 2.05 million units. April’s rate of 2.148 million was the highest in more than three decades.

Single-family home starts rose 4.7% in May to a 1.704-million-unit annual pace, the fourth highest on record. Starts of town houses, apartments and other multifamily dwellings fell 19% to a 305,000 rate.

Starts increased in all regions but the South, where they fell 12% to a 903,000-unit annual rate. Starts rose 12% in the West to 540,000. They rose 19% in the Midwest to 381,000, and 5.1% in the Northeast to 185,000.

Growing backlogs will keep builders occupied. The number of housing units authorized but not yet started was up 21% from May 2004.

Residential construction has grown at an 8.8% annual rate in the first quarter, faster than the 3.5% for the economy in general.