U.S. housing starts fell slightly in May but the pace of home building remains well ahead of last year amid steady demand from buyers.
Groundbreaking declined 0.3% to a seasonally adjusted annual rate of 1,164,000 starts, the Commerce Department said Friday, with a 0.3% increase in single-family home starts offset by a 1.2% drop in starts on structures with two or more units.
Single-family units account for roughly two-thirds of new construction.
May’s decline in overall starts followed a 4.9% surge in April. But for the year so far, starts are up 10.2% compared with the same period in 2015 and single-family housing starts are up 14.5%.
“The housing market has been one of the economy’s bright spots in recent months as low mortgage rates and a long stretch of job creation push more Americans toward buying a home,” The Wall Street Journal said.
Residential construction added almost six-tenths of a percentage point to first-quarter gross domestic product, the biggest contribution in more than three years.
But construction activity remains well below historical norms, reflecting high land and labor costs and the reluctance of builders to overextend themselves. From 1970 through the end of 2000, housing starts averaged more than 1.5 million a year.
“Single-family starts remain badly depressed from a longer-term perspective but have shown more recent strength,” Ted Wieseman, economist at Morgan Stanley, told the WSJ.
Most of the home-building surge is in the South, where single-family starts rose 2.6% in May to their highest level since December 2007.
New applications for building permits, a bellwether for forthcoming construction, increased 0.7% to 1.138 million from a revised April rate of 1.130 million. Economists surveyed by the WSJ had expected housing starts and building permits both to clock in at a rate of 1.15 million in May.
“Another month of gains in building permits coupled with near record low mortgage rates provide opportunity for a bounce back,” Bill Banfield, vice president at Quicken Loans in Detroit, told Reuters.