Robust demand fueled by continuing low mortgage rates and favorable economic conditions kept new-home construction humming along at a high pace in May.
According to U.S. Commerce Department figures, housing starts edged up 0.2 percent to a seasonally adjusted annual rate of 2.009 million units for the month. This was 1.8 percent above the pace of a year ago.
Single-family home construction led the way with a 4.7 percent increase to a pace of 1.704 million units for the month, 3.3 percent above May of last year.
“Builders are operating at capacity,” said Dave Wilson, president of the National Association of Home Builders (NAHB) and a custom home builder from Ketchum, Idaho. “With mortgage rates and other market conditions still very favorable, they see no letup through the summer months ahead.”
“The overall housing market continues to exhibit ongoing strength,” said NAHB Chief Economist David Seiders. “Major forces driving the housing market? Very favorable mortgage rates as well as strong household income and job growth continue to bolster housing demand. Housing production most likely will make another positive contribution to overall GDP growth for the second quarter as builders strive to meet the demand,” Seiders added.
Construction of new homes and apartments rose in three of four regions in May. The Northeast increased by 5.1 percent for the month, and the Midwest and West jumped by 18.7 percent and 12.3 percent, respectively. The South declined by 12.1 percent in May following a 23.7 percent surge in April.
Multifamily housing starts dropped in May on a national basis to a seasonally adjusted rate of 305,000 units. This was 19.3 percent below the multifamily market’s strong showing in April. “The multifamily market is showing typical month-to-month volatility, but fundamental conditions in the condo and rental markets remain solid,” Seiders said.
Issuance of total building permits declined 4.6 percent from the upwardly revised April pace to a seasonably adjusted rate of 2.050 million units. Single-family permit issuance dropped 1.3 percent to a rate of 1.619 million units.
On a year-to-date basis, both housing starts and building permits are running significantly above the pace of 2004.
“It is now highly likely that housing production in 2005 will surpass the robust performance of 2004, even if the interest rate structure moves up as projected,” Seiders said.