Construction of new homes leapt back in May after dropping sharply a month earlier, the government reported on Tuesday, signaling that the housing and construction markets might be hitting a bottom.þþIn another report, the government said that prices received by producers for finished goods rose a smaller-than-expected 0.2 percent in May, hinting that Wall Street’s fears of inflation may be exaggerated. Still, energy prices rose the most since January, with gasoline prices up nearly 14 percent for the month.þþSo-called core producer prices, which exclude food and energy costs, fell 0.1 percent, indicating broad pressure on prices because of lower demand across the economy.þþOn Wednesday, the government will release its monthly index of consumer prices, which reflects what consumers are paying at cash registers and gasoline pumps.þþHousing starts in the United States rose 17.2 percent from April — far exceeding economists’ expectations — as construction of single-family homes increased for a third month. Construction of apartment buildings and condominiums rebounded after falling steeply in April.þþBuilding permits rose 4 percent for the month, but housing completions fell 3.3 percent from April. þþOver all, housing starts in May increased to a seasonally adjusted annual rate of 532,000, an improvement from earlier this year but still down 45.2 percent from the pace of home construction in May a year ago. þþAnd while these levels of construction could mark a bottom, they are not likely to be the start of a turnaround, some experts said.þþ“There’s a real possibility they will just stall at a low level,” said Kenneth Simonson, chief economist of the Associated General Contractors of America. “If the recent jump in interest rates is sustained, that could choke off buyer enthusiasm for new homes.”þþRates on a 30-year fixed mortgage have risen to more than 5.5 percent, from record lows of 4.8 percent, since May as yields on government bonds crept up. Some housing experts worry that rising mortgage costs could reduce mortgage refinancing and drive potential buyers out of the housing market. Construction of multifamily units rose 61.7 percent in May to an annual rate of 131,000 units, after a decline of 49.4 percent in April. But economists said the multifamily sector of the housing market would probably stay weak, as evidenced by half-finished apartment towers across the country and the number of condo projects that are renting out units as a way to make money.þþ“The folks who would be renting homes are the ones having the hardest time finding or keeping jobs,” Mr. Simonson said. “New college graduates are moving back in with Mom and Dad instead of renting their first place.”þþHome builders are likely to remain wary of breaking ground on new projects, economists said. Credit markets remain tight for construction loans and potential buyers are still worried about losing their jobs or further declines in home values.þþWhile that means fewer construction jobs and more pain for contractors, electricians and other workers, many economists say that housing starts need to remain low to rebalance the gap between supply and demand in the housing market. About four million homes are now for sale, with more cheap foreclosures and distressed properties hitting the market every day.þþ“The inventory overhang means any recovery in building will be very muted for an extended period,” Ian Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “But at least the very worst is over.”þþIn a third report, the Federal Reserve reported that industrial production fell more than expected — 1.1 percent — in May. Output was also weaker — down 0.7 percent — in April than initially reported.þþ
Source: NY Times
