U.S. Housing Starts Pull Back Off Seven-Year High In May

(RTTNews) - After reporting a sharp jump in new residential construction in the U.S. in the previous month, the Commerce Department released a report on Tuesday showing that housing starts pulled back by more than expected in the month of May.

The report said housing starts tumbled 11.1 percent to an annual rate of 1.036 million in May after surging up 22.1 percent to a revised 1.165 million in April.

Economists had expected starts to drop to an annual rate of 1.090 million from the 1.135 million originally reported for the previous month.

With the bigger than expected decrease, housing starts gave back ground after jumping to their highest rate since November of 2007.

The pullback in housing starts was partly due to a steep drop in multi-family starts, which plunged 20.2 percent to a rate of 356,000.

Single-family housing starts also showed a notable decrease during the month, falling by 5.4 percent to a rate of 680,000.

Meanwhile, the report also said building permits, an indicator of future housing demand, jumped 11.8 percent to an annual rate of 1.275 million in May from the revised April rate of 1.140 million.

The increase in building permits came as a surprise to economists, who had expected permits to drop to a rate of 1.105 million.

With the unexpected increase, building permits reached their highest annual rate since hitting 1.321 million in August of 2007.

Multi-family permits soared 24.9 percent to a rate of 592,000, while single-family permits rose 2.6 percent to a rate of 683,000.

"Permits were unexpectedly strong in May," said Jennifer Lee, senior economist at BMO Capital. "That alone points to stronger residential construction activity ahead."

She added, "Maybe there was something to that latest 5 point jump in June homebuilder confidence."

On Monday, the National Association of Home Builders released a report showing a substantial improvement in homebuilder confidence in the month of June.

The report said the NAHB/Wells Fargo Housing Market Index jumped to 59 in June from 54 in May. The index has been expected to show a more modest increase to a reading of 56.

With the bigger than expected increase, the housing market index reached its highest level since a matching reading in September of 2014.