U.S. new-home construction rose more than projected in May to the fastest pace in more than a decade while permits cooled for a second month, indicating mixed progress in the supply-constrained housing market, government figures showed Tuesday.

Key Takeaways

The increase in groundbreaking was concentrated in the Midwest, the only region to see a gain in May, as starts jumped 62.2 per cent to 266,000 -- the highest since 2006. The other three regions saw declines, though the drop was only 0.9 per cent in the biggest area, the South.

Permits rose in the Northeast and Midwest, consistent with the view that national demand for housing remains solid. That reflects the support that prospective buyers are getting from a strong labour market, lower taxes and improved finances.

At the same time, potential buyers are facing a squeeze on affordability as property values keep soaring and mortgage rates climb. Tariffs on lumber and other imported materials, shortages of qualified workers, and a scarcity of ready-to-build lots are all leading to elevated construction costs.

A National Association of Home Builders/Wells Fargo gauge of homebuilders’ confidence fell in June to match the lowest level this year amid higher lumber prices, according to a report Monday. While U.S. gross domestic product is on track to rebound in the April-June period after a slower start to the year, residential investment has been a drag on growth for three of the past four quarters, the worst stretch since the recession ended in mid-2009.

Other Details

  • Single-family home starts rose to a 936,000 rate, highest since November, from 901,000 the prior month
  • Groundbreaking on multi-family homes, such as apartment buildings and condominiums, rose to an annual rate of 414,000 from 385,000; data on these projects can be volatile
  • Some 159,000 homes were authorized but not yet started in May, down 1.2 per cent from the prior month; the number of homes currently under construction rose to 1.13 million, the highest since July 2007
  • Report shows wide margin of error, with a 90 per cent chance that the May figure ranged from a 5.2 per cent drop to a 15.2 per cent gain
  • Report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington