WASHINGTON: US housing starts increased more than expected in April and activity in the prior month was stronger than initially thought, suggesting declining mortgage rates were providing some support to the struggling housing market.
Land and labour shortages, however, continue to constrain builders’ ability to construct more lower-priced houses, the segment of the market that has suffered an acute shortage of inventory and weak sales. Those supply challenges were highlighted by a drop in the number of homes under construction to a seven-month low in April.
“The housing market is coming back a little,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Building activity is what really matters for economic growth and right now, that is softening.”
Housing starts rose 5.7 percent to a seasonally adjusted annual rate of 1.235 million units last month, driven by gains in the construction of both single- and multi-family housing units, the Commerce Department said on Thursday. Groundbreaking was also likely boosted by drier weather in the Midwest.
Data for March was revised up to show homebuilding rising to a pace of 1.168 million units, instead of falling to a rate of 1.139 million units as previously reported.
Building permits rose 0.6 percent to a rate of 1.296 million units in April, after three straight monthly declines. Single-family building permits, however, fell for the fifth straight month, suggesting a moderation in groundbreaking activity was likely.
Economists polled by Reuters had forecast housing starts would increase to a pace of 1.205 million units in April.
The 30-year fixed mortgage rate has dropped to 4.10 percent from a peak of about 4.94 percent in November, according to data from mortgage finance agency Freddie Mac. Decreasing mortgage rates reflect a recent decision by the Federal Reserve to suspend its three-year monetary policy tightening campaign.
A survey on Wednesday showed confidence among homebuilders rose to a seven-month high in May. While lower borrowing costs are boosting demand, builders said they “continue to deal with
ongoing labour and lot shortages and rising material costs that are holding back supply and harming affordability.”
Relatively cheaper home loans and a strengthening labour market, characterised by the lowest unemployment rate in nearly 50 years, are underpinning demand for housing.
In a separate report on Thursday, the Labour Department said initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 212,000 for the week ended May 11.–Reuters