June 20 (Reuters) – Construction of single-family home construction projects in the United States rose in May by the most in more than three decades as permits for future building soared, suggesting the housing market may be turning a corner after being hit by the House of Representatives. Federal Reserve interest rate. walking long distances.
However, even with the Fed skipping a rate hike this month for the first time since early 2022, credit conditions are still tightening, and that could make it difficult for builders that rely heavily on construction and development loans to keep pace with May’s recovery. in the coming months.
In fact, economists note that multi-family construction projects that received financing last year contributed to May’s gain and may level off as the year progresses as it becomes more difficult to obtain new financing.
The Commerce Department said on Tuesday that initial housing units rose to a seasonally adjusted annual rate of 1.631 million units last month from 1.34 million units in April. May’s rate was the highest since April 2022, which was then the highest since 2006.
The initial increase of 291,000 units was the largest since January 1990, and the increase of 21.7% was the largest percentage increase since October 2016.
“While homebuilding data tends to be volatile and this number may be revised downwards in the coming months, the magnitude of the increase suggests that builders are broadly expanding their operations this summer,” Ben Ayers, chief economist at Nationwide, said in a note.
Starts were up by double-digit margins in the South, Midwest, and West while down about 19% in the Northeast. Single-family starts increased 18.5% as multi-family projects of five or more units rose 28.1%.
Not all economists were convinced that May’s recovery marked the beginning of a sustained rally.
“Power is so far from the trend that it calls into question sustainability,” wrote American economist Thomas Simmons Jefferies. He noted that the nearly 67% rise in starts in the Midwest, for example, may be the product of rebuilding efforts after the devastating spring hurricane season, which is unlikely to be repeated.
The housing market has taken the biggest hit from the Federal Reserve’s fastest monetary policy tightening campaign since the 1980s, but recent data suggested the worst may have passed.
Monday’s survey showed the National Association of Home Builders/Wells Fargo housing market index rose in June above the halfway mark of 50 for the first time since July 2022 as a dearth of previously owned homes supported new construction. The index has rebounded 77% since December.
The average 30-year fixed mortgage rate is down somewhat from last November’s high above 7%. It averaged 6.77% in the most recent week, according to data from the Mortgage Bankers Association.
But tighter credit conditions could make it more difficult for builders to access financing for new projects, a possibility that the NAHB chief addressed along with Monday’s release of union data.
“Construction and developer loans have become more difficult to obtain over the past year, which will ultimately lead to lower supplies as the industry attempts to expand outside the cycle lows,” NAHB Chair Alicia Huey said in a statement.
After raising interest rates by 5 percentage points since March 2022, the Fed took a break this month to assess the effects of the actions it has taken so far, although it is likely to resume rate hikes next month as inflation continues to rise.
However, most Fed officials see only one or two quarter-point rate hikes as necessary, and companies in rate-sensitive sectors like housing are showing signs of upward momentum as a result.
For example, future building permits rose 5.2% to their highest level since October at 1.491 million units, led by a 27.1% rise in the Northeast. Permits for single-family projects increased 4.8% while permits for multi-family projects increased 7.8%.
Bill Adams, chief economist at Comerica Bank, said home construction is set to add to US economic growth in the second half of this year. Residential construction has been a drag on GDP growth for eight consecutive quarters.
Reporting by Dan Burns. Editing by Connor Humphreys and Andrea Ricci
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