Builders Break Ground on More Homes

Housing starts and permits both climb in May.

The sluggish new-home market picked up some steam last month: Builders broke ground on more new homes in May and housing permits — a gauge for future construction — rose to its highest level in five months.

Housing starts increased 3.5 percent in May compared to April, the Commerce Department reported Thursday. Groundbreaking for new multi- and single-family homes was at its highest level in the West since last August.

A closer look behind the increase in housing starts: Single-family home construction rose 3.7 percent, while multi-family housing starts rose 2.9 percent. Housing starts are at a seasonally adjusted annual rate of 560,000 units per year — still far below the 1.2 million new homes per year level that economists consider a healthy pace.

Permits for future construction, however, rose 8.7 percent in May — reaching its highest level since December. Permits got a boost from a 23.2 percent increase in the multi-family segment as a high demand for rentals continues. Permits to build single-family homes increased 2.5 percent.

A high inventory of previously owned homes, particularly foreclosures, continues to weigh down the new-home market, which struggles to compete against the ultra-low prices of foreclosures.

Meanwhile, builders' outlook of the industry remains low too, reaching its lowest level in June in the last nine months, according to the National Association of Home Builders' index that measures builders' sentiment of the industry.

Builders are finding it "extremely difficult to construct a new home and sell it at a price that covers the costs," says Bob Nielsen, NAHB chairman and a builder from Reno, Nev.

Source: National Association of Realtors