US home construction likely rebounded in April after weak start to 2015

Industrials Associated Press

The Commerce Department reports on April U.S. home construction Tuesday at 8:30 a.m. Eastern.

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HOMEBUILDING RECOVERS: Economists expect that housing starts last month climbed 10.2 percent to a seasonally adjusted annual rate of 1.02 million, according to a survey by data firm FactSet.

SEARCHING FOR TRACTION: Homebuilders have been tentative in the opening months of 2015. Strong hiring over the past year and a recent pick-up in sales of existing homes have largely failed to boost the pace of construction. Ground breakings on houses and apartments have increased only 3.9 percent in the January-March quarter compared with the prior year, even as an increase in buyer demand pushes the inventory of homes on the market lower.

Sales of existing homes jumped 6.1 percent in March to a seasonally adjusted annual rate of 5.19 million, the National Association of Realtors said last month. But the market has just 4.6 months of supply, compared to six months in what economists consider to be a healthy market. An upswing in housing starts in April — which would put the rate of construction at its fastest clip in three months — could signal that builders are gearing up to meet demand.

Unless more inventory comes onto the market quickly, home prices are only going to rise, potentially putting them out of reach for thousands of would-be home buyers.

And yet, homebuilder confidence has ebbed in recent months.

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The National Association of Home Builders/Wells Fargo builder sentiment index released Monday slipped to 54 this month, down two points from 56 in April. Any reading above 50 signals expansion, yet the decrease suggested that builders still see would-be homebuyers as cautious.

Optimism has faded as the economy has entered into a unique predicament: hiring is solid, yet overall economic growth is feeble.

Employers added 223,000 jobs in April, causing the unemployment rate to slip to 5.4 percent from 5.5 percent. The economy has gained about 3.1 million new jobs — and paychecks — over the past 12 months. But the economic growth that those paychecks should fuel has yet to materialize. The U.S. economy expanded at an annual rate of 0.2 percent in the first quarter. It's currently on track to grow at a yearly rate of 0.7 percent in the second quarter, according to estimates by the Atlanta Federal Reserve.

The low mortgage rates that had been boosting sales are also steadily beginning to rise from recent lows. The average 30-year, fixed mortgage rate was 3.85 percent last week, according to the mortgage firm Freddie Mac. That is up from 3.65 percent a month ago.