US home construction expected to decline slightly in May after strong April gains

Industrials Associated Press

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

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HOMEBUILDING DIPS: Economists expect that housing starts last month fell 3.1 percent to a seasonally adjusted annual rate of 1.1 million, according to a survey by data firm FactSet.

STRONGER FOUNDATIONS: The housing sector has taken off this year, aided by the spillover effects of strong job growth and relatively low mortgage rates. Economists say that sales increased so sharply in April — surging 20.2 percent to an annual rate of 1.14 million — that some giveback is likely in May.

Employers have added 3.1 million jobs over the past 12 months — new paychecks that are flowing into the housing market as more Americans have the income to buy new houses at a median price of roughly $300,000. Sales of new homes have climbed nearly 24 percent year-to-date, according to a separate Commerce Department report.

There are also more Americans renting because — even though job growth has accelerated — the economy has slowly crawled back over the past six years from the Great Recession. The Washington-based think tank Urban Institute estimates in a recent report that 13 million additional households will be renting by 2030, compared with 9 million additional homeowners.

But the increased demand has kept supplies tight, feeding expectations that builders will respond by breaking ground on more houses and apartment complexes in the coming months.

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As of April, the market for new homes had 4.8 months of supply, compared with 5.6 months a year ago. A healthy market generally contains six months' worth of supply.

Builders also have increasingly positive outlooks on sales.

The National Association of Home Builders/Wells Fargo builder sentiment index released Monday rose to 59 this month, up five points from 54 the May reading. Readings above 50 indicate more builders view sales conditions as good rather than poor.

Mortgage rates have started to climb, although they remain low by historic standards.

The average 30-year, fixed mortgage rate was 4.04 percent last week, according to the mortgage firm Freddie Mac. That is up from 3.87 percent in the prior week.