New home construction jumped by a better-than-expected 17 percent in May, the Commerce Department reported Tuesday, which would put the annual pace of housing starts at 532,000 units.
That is still 45 percent below the rate a year ago and the fourth-lowest total on records stretching back to 1963. But it does suggest that new-home construction has begun to stabilize after falling some 75 percent from the peak of the housing boom.
The stabilization was evident in both single-family homes and multifamily units. April's multifamily starts were so abysmal – a record low of 70,000 units (at an annual rate) – that most analysts had expected a rebound. It was a sharp one: up 77 percent to an annual rate of 124,000 units.
More impressive was the 7.5 percent increase in single-family housing starts, the third monthly gain from the record lows set in January and February. May's annual rate stood at 401,000 units, still 41 percent below the same period a year ago.
Higher mortgage rates – as well a weakening jobs market – stand in the way of a sharper rebound in housing construction, analysts say. "We continue to believe that the overall median price of homes is going to continue to decline for some time," wrote economist Joshua Shapiro of MFR Inc. in an analysis.