May 16, 2014 / 12:35 PM / 5 years ago

Demand for rental units buoys housing starts

WASHINGTON (Reuters) - U.S. housing starts jumped in April and building permits hit their highest level in nearly six years, offering hope the troubled housing market could be stabilizing.

Sold homes are seen in the southwest area of Portland, Oregon March 20, 2014. REUTERS/Steve Dipaola

A separate report on Friday showed consumer sentiment falling in May on worries over income growth, tempering the housing data’s upbeat signal on the economy.

Groundbreaking for homes surged 13.2 percent to a seasonally adjusted annual pace of 1.07 million units, the highest since November 2013, the Commerce Department said. The increase, which marked a rebound from a cold winter that had weighed on activity, was driven by starts on multi-family housing.

A combination of rising mortgage rates and prices, and slow growing earnings, has pushed homeownership out of the reach of many Americans, helping fuel demand for rental and condo units.

“The current stock of apartments is insufficient to satisfy demand, sending rents soaring across the country and making multi-family units an attractive investment for developers and landlords,” said Stephanie Karol, an economist at IHS Global Insight in Lexington, Massachusetts.

Groundbreaking for single-family homes, the largest part of the market, rose 0.8 percent, while starts for the volatile multi-family homes segment surged 39.6 percent.

U.S. Treasury debt yields rose on the data, while the dollar was little changed against a basket of currencies. U.S. stocks traded largely unchanged.

The housing market contracted for a second consecutive quarter in the first three months of 2014, and is expected to add little if anything to growth this year. Federal Reserve Chair Janet Yellen said earlier this month that there was a risk a protracted housing slowdown could undermine the economy.

A range of data has shown the economy bouncing back from a deep winter chill. A quarterly survey released by the Philadelphia Federal Reserve Bank on Friday showed forecasters had bumped up their expectations for second-quarter growth to a 3.3 percent annual pace from 3.0 percent previously.

But questions remain over how lasting the current strength will prove, and the report on consumer confidence offered a cautionary note. The Thomson Reuters/University of Michigan’s consumer sentiment index fell to 81.8 from 84.1 in April.


The housing starts report suggested building activity would likely continue to rise for some time as permits to build homes jumped 8.0 percent to a 1.08-million unit pace in April, the highest since June 2008.

Permits for single-family homes, however, rose just 0.3 percent and continue to lag groundbreaking, suggesting single-family starts could decline in the months ahead. A survey on Thursday showed confidence among single-family home builders slipped to a one-year low in May.

In contrast, permits for multi-family housing soared 19.5 percent. Multi-family permits are running well ahead of starts, which could indicate delays in getting projects started. Permits for buildings with five or more units were the highest since June 2008.

Reporting by Lucia Mutikani; Editing by Paul Simao

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