U.S. housing starts dropped in May although permits to build new homes rose to the highest in well over three years.
New homes dropped 4.8 per cent to a seasonally adjusted annual rate of 708,000 units, according to a report released by the Commerce Department.
Work began on 516,000 one-family houses at an annual rate last month, up 3.2 percent from April and the most this year, the report showed. A slump in construction of apartments, which is often volatile, led to an unexpected drop in total housing starts.
New permits for building homes increased 7.9 percent to a 780,000-unit pace. That was the highest since September 2008 and well above analysts' forecasts.
Meanwhile, multifamily homes with at least two units, tumbled by 21.3% in May. Keep in mind that this number is volatile and apartment developers continue their rush to deliver new apartment buildings to meet a growing demand for rental units.
"Momentum in demand has continued through the end of the spring selling season as buyer confidence has also improved. This also marks the highest level in single-family permits since before the end of the homebuyer tax credit in March '10," said Dan Oppenheim, analyst at Credit Suisse.
"We think the higher construction activity will translate into better new home sales data reported next Monday, and would also expect May pending home sales (contract signings on existing homes) to show strength next Wednesday, which should boost the stocks," he added.
