The pace of permits for new construction approached a five-year high in April, according to the latest government numbers; in contrast, new housing starts fell to a five-month low. Builder confidence, on the wane for the last two months, is showing improvement, based on a new urgency to develop land and housing to meet rising demand.

Construction starts on new U.S. homes fell to a five-month low in April following March's surge in multi-family unit starts.

Housing starts slumped 16.5 percent in April, the most since February 2011, to an 853,000 annualized rate, following a downwardly revised 1.02 million pace in March, according to a May 16 Commerce Department report. New single-family home starts fell 2.1 percent to a 610,000 rate in April, from 623,000 the month prior, the second consecutive month of negative movement.

The volatile multi-family unit sector, which includes apartment buildings and other rental space, slumped 38.9 percent to an annualized rate of 243,000 units. The steep decline follows a 27 percent surge in March, a seven-year high for the multi-family market segment that pushed the pace of starts over one million last month for the first time since June 2008.

"Starts are very weak and permits are very strong "?(R)? [which] seems to have been exaggerated by the volatile multifamily sector," David Sloan, a senior economist at 4Cast Inc., told Bloomberg News. "The permits data suggests the [housing market's] momentum will resume."

Building Permits
In direct contrast to construction starts, building permits surged to an almost five-year high. The annual rate in April increased 14.3 percent to 1.02 million units, the highest since June 2008.

Growth in permits, an indicator of future construction, indicates that any immediate struggles the housing sector could face might be short-lived.

Builders started work on 780,000 homes in 2012, a 28 percent increase from the prior year and the third annual advance in a row. Despite the gains, starts remain short of the 2.1 million units started in 2005 at the peak of the boom, a three-decade high.

Builder Confidence
The index for builder confidence in the new single-family housing market improved three points to a 44 reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May, released May 15. This gain, from a downwardly revised 41 in April, reflected improvement in all three index components – current sales conditions, sales expectations and traffic of prospective buyers.

"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," said NAHB chairman Rick Judson. "This is definitely an encouraging sign, even amidst rising challenges with regard to the cost and availability of building materials, lots and labor."

The index gauging current sales conditions increased four points to 48, while the index gauging expectations for future sales edged up a single point to 53 – its highest level since February of 2007. The index gauging traffic of prospective buyers gained three points to 33. The index peak over the last 12 months was 47, set in December 2012 and January 2013. Scores over 50 for each component indicate that more builders view conditions as good than poor.

"While industry supply chains will take time to re-establish themselves following recession-related cutbacks, builders' views of current sales conditions have improved and expectations for the future remain quite strong as consumers head back to the market," said NAHB chief economist David Crowe.

HMI tables can be found at nahb.org/hmi.