May Housing Starts Drop; Economy Still Strong

WASHINGTON, D.C. ?EUR??,,????'??+ Despite a slight drop in housing starts from April?EUR??,,????'???s figures, May?EUR??,,????'???s tally is seen as further evidence that the economy is growing at an impressive rate. The Commerce Department reported Wednesday that the number of residential units under way came in at a seasonally adjusted annual rate of 1.97 million last month. While that represented a 0.7 percent drop from April, the pace exceeded analysts?EUR??,,????'??? forecasts. They were calling for a construction rate of around 1.95 million units. In addition, the number of new housing projects started in April turned out to be higher than the government previously estimated. April's projects clocked in at a rate of 1.98 million units. ?EUR??,,????'??While the overall starts number was essentially flat, both single-family starts and building permits chalked up significant gains last month,?EUR??,,????'?? said Bobby Rayburn, president of the National Association of Home Builders (NAHB). Total housing permits rose by 3.5 percent in May to a rate of 2.01 million units, the highest level since February 1973. And permits issued for just single-family homes in May came to a record rate of 1.59 million units. ?EUR??,,????'??So far in this year?EUR??,,????'???s second quarter, average new-home production is running at or above par with the very solid first quarter, and we see no signs of any systematic weakening in any of the four regions,?EUR??,,????'?? said NAHB Chief Economist David Seiders. ?EUR??,,????'??As anticipated, the effects of the strengthening economy and job market, along with attractive increases in house values, evidently are overriding the higher interest-rate structure as an influence on home buyers.?EUR??,,????'?? With the recovery firmly rooted and the labor market improving, economists expect the Federal Reserve to raise interest rates for the first time in four years on June 30. For nearly a year, the Fed has held a key short-term interest rate at one percent, a 46-year low. Most economists believe the Fed will boost rates by one-quarter percentage point in June. According to the NAHB, on a regional basis, Wednesday?EUR??,,????'???s report was something of a mixed bag, with three of four regions reporting declines in housing starts, one region (the West) reporting a substantial gain, two regions reporting increased building permits and two reporting declines in permit issuance. But April-May averages reveal significant strength across the board. For the first two months of the second quarter, the pace of housing starts surpassed the first-quarter pace in the Northeast and West and equaled the pace set in the Midwest and South. In terms of building permits, the April-May average surpassed the first-quarter pace in every region. ?EUR??,,????'??Given the solid fundamentals of this marketplace, including relatively thin inventories of unsold units, great house-price performance (for both single-family homes and condos) and excellent demographic projections, we are currently forecasting 1.9 million starts for all of 2004, up about five percent from last year,?EUR??,,????'?? Seiders said.