WASHINGTON - U.S. builders are preparing to ramp up home construction this summer, underscoring Americans’ growing demand for housing and potentially propelling the economy to stronger growth.
Groundbreakings surged to a seven-year high in April before falling 11% last month, the Commerce Department said Tuesday. The level of activity remained stable in May at an annual rate of 1.04 million units, and signs pointed to further gains in coming months.
Permits to build new homes surged 12% last month to an annual rate of 1.275 million, the highest since August 2007. Permits for apartment construction surged, while permits for single-family homes, a much broader segment, rose modestly.
The figures offer the latest sign the housing market is slowly gaining momentum as more Americans land jobs and start to see slightly higher wage gains, positioning them for home buying. Meanwhile, a rapid rise in home rents in recent years is making apartment construction more attractive.
”The fundamentals for single-family homebuilding are quite positive: job and income gains, pent-up demand, low mortgage rates, and easing access to credit,”Stuart Hoffman, PNC’s chief economist, said in a note to clients. “New rules designed to encourage mortgage lending, especially to first-time buyers, provide upside potential for single-family homebuilding.”
A pickup in home building would boost the economy, since it would increase construction jobs while supporting many other industries, from lumber to furniture makers.
Last month’s pullback in overall home construction may have been driven in part by weather. Unusually wet weather stymied builders in several states in May, especially those in the central and southern U.S. In Texas, which often vies with California as the busiest state for builders, May rainfall amounted to 8.93 inches, far exceeding the previous monthly record of 6.66 inches set in June 2004, according to the National Center for Environmental Information.
May rainfall totals in neighboring states were similarly high, including 8.12 inches in Louisiana, 14.06 inches in Oklahoma, 10.35 inches in Arkansas, 8.15 inches in Kansas and 5.27 inches in Colorado.
Tuesday’s report on housing starts showed that construction fell in all four regions, with the biggest declines occurring in the Northeast and Midwest.
Demand for new homes remained strong, builders say, but the constant rain in certain states made pouring foundations, framing and roofing all but impossible. DSLD Homes, a closely held builder based in Baton Rouge, La., started construction of 150 homes in May in Louisiana, Mississippi and Alabama. That is roughly flat with DSLD’s year-ago tally, and it is a slowdown from the 15% year-over-year gains that the builder logged in March and April.
”We had crews idled, and things cost more when you’re trying to do them in between rain,” DSLD Chief Executive Saun Sullivan said. “Even if the same amount of construction happens, it costs more to get it to happen. There are more open items like sod (installation) and more crews working on the weekend.”
In Texas, McGuyer Homebuilders Inc. started 136 homes in May, up 20% from a year ago. Demand justified starting additional homes that month, but the rain wouldn’t allow it. McGuyer’s starts “would have been 33% higher if not for the weather delay,” McGuyer President Gary Tesch said.
U.S. housing starts are still far below historical norms. Even with the latest momentum groundbreakings are less than half their 2006 peak of 2.27 million homes, annualized. In the late 1990s starts routinely exceeded a 1.5 million pace.
Other reports show progress in the housing market. Confidence among home builders rose this month to the highest level since September, the industry’s National Association of Home Builders said this week.
Measures of current and future sales expectations “are at their highest levels since the last quarter of 2005, indicating a growing optimism among builders that housing will continue to strengthen in the months ahead,” NAHB Chief Economist David Crowe said in a statement.
Pending home sales—a measure of purchases based on contract signings rather than closings—climbed in the first four months of the year, with April marking a nine-year high, the National Association of Realtors said last month.
The most closely watched measure of the housing market—sales of previously owned homes, based on closings—surged in March, but gave up some ground in April, the NAR said last month.
This article originally appeared in the Economy section of The Wall Street Journal. For more information, visit www.wsj.com.