Starts of new U.S. homes fell more than forecast in April to a five-month low, indicating a pause in the industry’s progress as builders slowed work on apartments. Building permits surged to an almost five-year high.
Housing starts slumped 16.5%, the most since February 2011, to an 853,000 annualized rate after a revised 1.02 million pace in March, the Commerce Department reported today in Washington. The median estimate of 81 economists surveyed by Bloomberg was for a 970,000 rate.
Building applications that are higher than the level of starts signal residential construction will rebound as near record-low mortgage rates and improving job opportunities draw buyers. A limited supply of land is a hurdle for housing even as recent strength in real estate extends beyond builders to boost lenders and suppliers of construction materials.
“The housing sector has had a bit of a pause recently but the permits data suggests the momentum will resume,” said David Sloan, a senior economist at 4Cast Inc. in New York and the top forecaster for housing starts in the past two years, according to data compiled by Bloomberg. “Starts are very weak and permits are very strong. It seems to have been exaggerated by the volatile multifamily sector.”
Another report today showed jobless claims jumped to the highest level since the end of March. Stock-index futures fell after the reports, with the contract on the Standard & Poor’s 500 Index expiring in June falling 0.1% to 1,652.8 at 8:47 a.m. in New York.
Estimates in the Bloomberg survey ranged from an 873,000 pace to a 1.05 million rate after an initially reported 1.04 million in March.
Building permits increased 14.3% to a 1.02 million annualized rate in April, the highest level since June 2008, exceeding the median forecast of 941,000.
Construction of single-family houses fell 2.1% to a 610,000 rate from 623,000 the prior month.
Work on multifamily projects such as apartment buildings slumped 38.9% to an annualized rate of 243,000.
Three of four regions had a decrease in starts last month, led by a 27.9% decrease in the South, today’s report showed. Starts in the Midwest rose 10.9%.
Builders began work on 780,000 homes in 2012, a 28% increase from the prior year and the third-straight annual advance. Even with the gains, starts remain short of the 2.1 million reached in 2005 at the peak of the boom, which was a three-decade high.
A measure of builder optimism climbed in May for the first time in five months, a National Association of Home Builders/Wells Fargo index of builder confidence showed yesterday. The gauge rose to 44 from 41 in April, according to the Washington-based group.
“There is no question there is a lot of positive momentum in the marketplace,” Ara Hovnanian, chairman and chief executive officer at Red Bank, New Jersey-based builder Hovnanian Enterprises Inc., said at a May 9 conference. “In terms of sales, office activity and traffic, we’re feeling positive momentum.”
The Federal Reserve’s efforts to keep mortgage costs low have helped bring about a turnaround in housing, the industry that was at the center of the worst recession since World War II.
Cheaper borrowing costs are attracting buyers with access to credit. The average rate on a 30-year, fixed purchase loan was 3.42% for the week ended May 9, down from 3.83% a year ago, according to McLean, Virginia-based Freddie Mac. The rate reached a record low of 3.31% in November.
Suppliers have been racing to keep pace. Sales at Ply Gem Holdings Inc. in Cary, North Carolina, increased 7.5% in the first quarter compared with a year earlier on demand for its windows, doors, vinyl siding and other construction materials.
A strengthening housing market also is giving a lift to brokers and mortgage lenders. Redwood Trust Inc. is helping to meet growing demand for large purchase-money mortgages known as jumbos. The real-estate financing company, based in Mill Valley, California, issued about $2.5 billion worth of home loan securities in 2012 and expects to issue $8 billion this year.
“Now is a great time to be taking credit risk on newly originated loans,” Redwood President Brett Nicholas said at a May 14 conference. “There has been a recovery in housing, particularly in the jumbo markets, really nationwide because housing has really come back strong.”