Homebuilding bounces back as lumber prices cool

Housing starts rose 3.6% in May

U.S. homebuilding bounced back in May as lumber prices pulled back from record highs. 

Housing starts rose 3.6% to a seasonally adjusted annual rate of 1.572 million last month, the Commerce Department said on Wednesday. April’s reading was revised lower to 1.517 million from 1.569 million. Economists surveyed by Refinitiv had expected housing starts to rise to 1.63 million.

HOMEBUILDER CONFIDENCE SLIPS TO 10-MONTH LOW AS RISING MATERIAL COSTS WEIGH

Starts surged 50% on a year-over-year basis in May. Homebuilding rose in the Midwest, South and West but fell in the Northeast. 

The slight increase in homebuilding came as lumber prices topped out on May 7 and fell 22% through the end of the month, finishing below where they ended April. A lumber shortage that developed in the aftermath of COVID-19 lockdowns caused the cost of the critical material to soar, resulting in builders putting off projects and losing confidence.        

Permits for future construction slipped 3% to a rate of 1.681 million units in May, missing the 1.73 million units that economists were expecting. 

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The drop in builder confidence was reflected in the latest National Association of Homebuilder’s/Wells Fargo Housing Market Index that was released on Tuesday. The index fell two points in June to 81, a 10-month low.