6-16-11 10:00 AM EDT
WASHINGTON (Dow Jones)-- U.S. home construction rose modestly in May and the previous month's results were better than initially estimated, but the long- troubled sector remains a sluggish part of the economy.
Construction of homes and apartments last month increased 3.5% from a month earlier to a seasonally adjusted annual rate of 560,000, the Commerce Department said Thursday. Figures for April were revised upward to an annualized pace of 541,000.
Compared with the same month a year earlier, overall new-home construction in May was down 3.4%.
Newly issued building permits, a gauge of future construction, rose 8.7% from a month earlier to an annual rate of 612,000, the highest level since December.
The results were better than analysts had expected. Economists surveyed by Dow Jones Newswires expected housing starts would rise by 4.8% to an annual rate of 548,000. Permits had been projected to fall 0.7% to an annual rate of 559,000.
Construction of single-family homes, which made up about two-thirds of all starts, rose by 3.7% from a month earlier. Construction of multifamily homes with at least two units, a volatile part of the market, was up 2.9% on a monthly basis.
Though the overall economy grew at an annualized rate of 1.8% in the first three months of 2011, the battered housing sector detracted from economic growth, subtracting 0.07 percentage point from the nation's gross domestic product. It was the fourth quarter out of the past six in which housing has been a drag on growth.
Builders are remaining idle due to weak demand from buyers, many of whom have become nervous as U.S. home prices have fallen to the lowest point of the five- year housing bust. Many buyers have been choosing foreclosures and other previously owned homes rather than new homes, which typically are more expensive.
Reflecting weak demand, the number of homes under construction in May was at the lowest level on records dating back to 1970.
The housing sector's results had improved last year, when consumers rushed to take advantage of U.S. government tax credits that mainly benefited first-time home-buyers. But since the offer expired last spring, orders and closings have plunged, causing revenues to tumble.
Aside from low demand, builders have also had problems getting financing to start projects and have been coping with rising costs for materials.
On Wednesday, the National Association of Home Builders said its index of builders' sentiment about the market sank to the lowest level since September. The last time the home builders' confidence gauge was in positive territory was April 2006.
The Commerce Department data showed that housing starts fell on a monthly basis in two out of four U.S. regions. They surged 18.1% in the West and rose 1.5% in the South, but were down 4.1% in the Midwest and 3.3% in the Northeast.
Actual housing starts, calculated without seasonal adjustments, rose to 55,600 in May from an upwardly revised 48,400 in April. Lumber and commodities markets watch those numbers closely to gauge demand.
The Commerce report can be found at http://www.census.gov/const/ newresconst.pdf
-By Alan Zibel and Jeff Bater; Dow Jones Newswires; 202-862-9263; alan.zibel@ dowjones.com
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