U.S. new-home construction declined for the third straight month in May, signaling a softening in home building at a time of tight supply.
Housing starts dropped 5.5% in May from the prior month to a seasonally adjusted annual rate of 1.092 million, the Commerce Department said Friday. May's figure carries a margin of error of 11.9%.
The plunge in starts last month was led by continued weakness in multifamily construction, but single-family starts were lower as well.
"A shortage of construction workers may be weighing on the construction industry, and in some parts of the country short supply of land to build on is also a factor," said PNC chief economist Gus Faucher in a note.
Still, looking past month-to-month fluctuations, starts in the first five months of the year were up 3.2%. Residential building permits, an indication of how much construction is in the pipeline, increased 5.5%.
For the month, permits fell 4.9% to an annual pace of 1.168 million. Permits last month were down 10.4% for buildings with multiple units and down 1.9% for single-family homes.
Home-builder confidence slipped this month but remained high historically, the National Association of Home Builders said Thursday. Builders are expressing concern over a shortage of skilled labor and buildable lots.
Greg Ugalde, president of Connecticut-based builder T&M Building Co. Inc., said home builders are looking at smaller land options, given the tight availability of subdivisions.
"A lot of the other builders now that used to pick up these subdivisions of up to 50 lots don't have as great an opportunity anymore," Mr. Ugalde said.
The shortage of inventory comes in concert with rising demand, particularly from millennials.
"Part of the problem is we're benefiting from a demographic tailwind of millennial housing demand," said Mark Fleming, chief economist at First American Financial Corporation. "When a millennial moves out of the parents' proverbial basement, the need for a new housing unit is created."
The median sales price for a home in April was $244,800, up 6% from a year earlier. Wednesday's decision by the Federal Reserve to raise short-term interest rates could ultimately also help nudge mortgage rates higher.
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(END) Dow Jones Newswires
June 16, 2017 13:06 ET (17:06 GMT)