Following a report from the National Association of Home Builders (NAHB) that builder confidence reached a new high in early June, the U.S. Department of Commerce on Tuesday released figures showing that housing starts increased 6.8% in May compared to April.
Nationwide, about 914,000 new homes were started in May. That is fewer than the 950,000 starts economists had forecast but still represents a five-year high. About 856,000 new homes were started in April.
Analysts predict housing starts will increase through this year, driven by historically low (but now rising) interest rates, increasing home values, lack of inventory and pent-up demand.
"We'll continue to see starts increase through the remainder of this year and into the next," Ryan Sweet, an economist at Moody's Analytics Inc., told Bloomberg News. "Permits are still slowly heading in the right direction."
Although housing starts were up for May, the total number of building permits pulled in that month decreased 3.1%, due mainly to a 10% drop in applications for multifamily dwellings, according to the report.
Construction of single-family houses rose 0.3%, while construction of multifamily projects such as apartment buildings increased 21.6%.
Weather plays a role in measuring housing starts – for example, although starts increased 17.8% in the southern states and 5.7% in the western states, they dropped 13.7% in the Midwest, which has seen a wetter-than-normal spring.
Despite the increase, housing starts remain far below the 2.1 million reached in 2005, which was a three-decade high, according to the Bloomberg News report.
Meanwhile, builder confidence climbed to reach its highest level since 2006, according to the National Association of Home Builders/Wells Fargo Index (HMI), rising to 52 in June from 44 in May.
The HMI hit a significant milestone when it crossed the 50-mark, according to the trade group.
"This is the first time the HMI has been above 50 since April 2006, and surpassing this important benchmark reflects the fact that builders are seeing better market conditions as demand for new homes increases," said Rick Judson, chairman of the NAHB and a home builder and developer from Charlotte, N.C., in a release. "With the low inventory of existing homes, an increasing number of buyers are gravitating toward new homes."
It was the biggest one-month gain since August and September 2002, when the HMI recorded a similar increase of eight points.
The NAHB is predicting a 29% increase in total housing starts this year.