Home Construction Takes Big Leap in May

Washington, DC, June 16, 2009--Construction of new homes jumped in May by the largest amount in three months, according to the Commerce Department.

The agency said Tuesday that construction of new homes and apartments jumped 17.2 percent last month to a seasonally adjusted annual rate of 532,000 units.

That was better than the 500,000-unit pace that economists had expected and came after construction fell in April to a record low of 454,000 units.

In another encouraging sign, applications for building permits, seen as a good indicator of future activity, rose 4 percent in May to an annual rate of 518,000 units.

The better-than-expected rebound in construction was the latest sign that the prolonged slump in housing is coming to an end, which would be good news for the broader economy.

Even with the encouraging news, analysts don't expect a quick rebound in housing, since the economy is still shedding jobs and home prices are falling in many places, making people hesitant to commit to buying a new home.

Many economists say home construction likely will stop falling in the current quarter but any sustained rebound isn't expected to take hold until next spring.

That's partly due to the huge overhang of unsold homes and a record wave of mortgage foreclosures dumping more unsold homes on the market.

The 17.2 percent rise in housing construction for May still left activity 45.2 percent below where it was a year ago.

The jump reflected a 7.5 percent rise in construction of single-family homes. Construction of multifamily units rose 61.7 percent in May to an annual rate of 131,000 units. This volatile part of the market plunged 49.4 percent in April.