Work on multifamily projects such as apartment buildings increased 21.6% to an annualized rate of 315,000.
Two of four regions had a increase in starts last month, including a 17.8% jump in the South and a 5.7% gain in the West. Starts dropped 13.7% in the Midwest, which may have been due to wetter-than-normal weather in the region.
Last month, precipitation across the contiguous U.S. was 0.47 inches above average, and the wettest May since 1995, according to the National Oceanic and Atmospheric Administration. Most of the northern U.S. had above-average precipitation. Iowa had its wettest May ever.
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.
Improving property values and cheaper borrowing costs have encouraged some Americans to buy new homes before mortgage rates head higher. The average rate on a 30-year fixed loan jumped to a 14-month high of almost 4% last week from a four-month low of 3.35% in early May, according to Freddie Mac data.
“I’m quite nervous about how the market is going to digest the higher interest rates,” Ian Shepherdson, an economist at Pantheon Macroeconomics, said before the report. “It’s quite a big spike. That might induce a bit of indigestion.”
Mortgage rates are climbing because of heightened consumer demand for loans, Neil Dutta, an economist at Renaissance Macro Research LLC in New York, said in a note to clients yesterday.
“Interest rates have risen, but they’re still at historic lows,” Robert Niblock, chief executive officer of Lowe’s Cos., the second-largest U.S. home improvement retailer, said yesterday in an interview. The Mooresville, North Carolina-based company’s sales in the second quarter have recovered from March and April when rainy, colder-than-normal weather limited demand, he said.