Housing starts jumped 17 percent from April to May, to an annual rate of 532,000, but builder confidence remains low, according to separate reports out this week.

Much of the increase in housing starts last month was in multifamily construction — single-family starts were up a more modest 7.5 percent from April to May, to an annual rate of 401,000 homes a year — the U.S. Census Bureau and the Department of Housing and Urban Development said in a report today.

Looking back a year, housing starts were off 45.2 percent from the rate of 971,000 units per year seen in May 2008.

Looking ahead, building permits were issued at a rate of 518,000 per year during May, up 4 percent from April but down 47 percent from a year ago, when permits were pulled at the rate of 978,000 a year.

The increase in housing starts and permits "might be good news in the short term for homebuilders like Lennar and D.R. Horton," but in the long term "does not make the overall housing market any healthier," said Dirk van Dijk, an analyst with Zacks Investment Research, in a blog post on the report.

Like other analysts, van Dijk is concerned that an uptick in construction of new homes will slow the progress builders have made in reducing inventories of unsold homes. If a market is oversupplied, "the last thing you want to see is more supply," van Dijk said.

Last month the Census Bureau reported that inventories of newly built single-family homes fell below 300,000 in April — the smallest number since May 2001.

But with the pace of new-home sales also having fallen to 352,000 per year, that represented a 10.1-month supply of new homes. Inventories were down from 12.4 months of supply in January, but six months of supply is considered a more balanced market (see story).

In announcing the results of a survey taken before the release of the new construction statistics for May, the National Association of Home Builders said builders "remain cautious and concerned about the fragile state of today’s economy and housing market."

The NAHB/Wells Fargo Housing Market Index declined one point, to 15, from May to June, the industry association said. A number under 50 indicates that more builders view conditions as poor than good.

Builders are worried about the scheduled expiration of the first-time homebuyer tax credit at the end of November, the recent upturn in interest rates, and lack of credit for housing production loans, the group said.

The survey of builder sentiment showed the builders most pessimistic in the West and South, and most optimistic in the Northeast. In the South, the nation’s largest housing market, the index declined three points, to 15. The Northeast had a one-point gain to 20; the Midwest, a one-point gain to 15; and the West, a two-point gain to 14.


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