The pace of housing starts rose by 5.0% to a 1.350 million seasonally adjusted annual rate in May, above expectations for a 1.320 million rate, but due entirely to a large jump in the Midwest, data reported by the Commerce Department Tuesday morning showed.
There were small downward revisions to the starts pace in March and April.
Housing starts surged by 62.2% in the Midwest, hitting 266,000, the strongest pace since September 2006. Partially offsetting this large gain were declines in the Northeast, South, and West.
Housing starts of single-family homes rose by 3.9% in May after a 2.2% gain in the previous month, while multi-family starts rose 7.5% in the month, based on an MNI calculation. This followed a 13.5% decline in the previous month.
Building permits fell by 4.6% in the month to a 1.301 million rate after falling to 1.364 million in April. Homes permitted but not started fell 1.2% in May.
As a result, starts could see a small reversal in the coming months. Single-family permits authorized fell by 2.2%, while multi-family permits were down 8.8%. Additionally, the NAHB index for June reported on Monday showed a small decline in builder confidence.
After two months, the housing starts average pace for the second quarter was 1.318 million, up very modestly from the 1.317 million first quarter average after all revisions were included. The second quarter permits pace, at 1.333 million, was down from the 1.355 million first quarter average. As a result, it appears that residential fixed investment will be a negative factor for second quarter GDP.
Homes under construction were up 0.2%, while completions rose by 1.9%, suggesting rising new home supply in the near term.
