Housing starts ratchet up in May

NEW YORK (CNNMoney.com) -- The nation's builders boosted their production in May, starting new housing units at an annualized rate of 532,000, up 17.2% from the revised estimate of 454,000 in April.

The data release, a monthly report from the Census Bureau, also revealed that building permits jumped by 4% to a rate of 518,000 from 498,000 in April.

Both figures were higher than expected. A consensus estimate from Briefing.com had forecast that starts would rise 485,000 and permits to 508,000.

But despite those big improvements against record lows set the month before, the home construction industry still sits deep in the doldrums. In May 2008, new home starts showed an annual rate of 975,000. Two years ago, the rate was about 1.4 million units.

Builders' confidence may get a boost from existing home sales, which have inched up from record lows set during the winter.

In the latest survey of builder confidence, released Monday, it actually declined a point to 15. Scores above 50 indicate more builders are optimistic about their industry that not and scores of 70 and more were common during the boom years.

"The outlook for home sales has improved somewhat in recent months, due largely to implementation of the first-time home buyer tax credit and gains in housing affordability," said the chairman of the National Association of Homebuilders, Joe Robson.

"However, looking forward, home builders are facing a few headwinds, including expiration of the tax credit at the end of November; a recent upturn in interest rates; and especially the continuing lack of credit for housing production loans."

Condo developers have been especially hard-hit by financing problems, according to Mike Larson, a real estate analyst for Weiss Research. That has led to volatility in the statistics for multi-family housing starts and permits.

Much of the rise in starts during May can be attributed to the 61.7% spike in multi-family housing starts. That compared with a nearly 50% drop in multi-family starts during April. Also noteworthy about the May report was the rise in single-family starts, which posted the biggest jump since January 2006 at 401,000 from 373,000.

"That's evidence that the market is no longer falling off a cliff," he said. "But we're still not seeing any rip-roaring rebound. Tighter lending standards, rising mortgage rates, and a dismal employment market will all combine to drag out the turnaround timeline, and ensure the recovery remains a muted one."

Every region gained housing starts in May. The Northeast was up 2%, the Midwest 11.1%, the South 16.8% and in the West a whopping 28.6%. Permits grew 5.7% in the Northeast, 8.9% in the Midwest, 2.3% in the South and 3.8% in the West.