Housing starts jumped 22 percent in May to a seasonally adjusted annual rate of 1.09 million units, the highest level in a year, the Commerce Department reported yesterday.
But some housing experts questioned whether the improvement will be sustained. "You cannot imply a trend out of one month's data," cautioned Robert Sheehan, director of economic research for the National Association of Home Builders. "With mortgage interest rates above 16 percent, it's hard to see a recovery."
Sheehan noted that housing starts increased for four months in a row before dropping in March and April. "We could be back to the low 900s again next month," he said.
Mark J. Riedy of the Mortgage Bankers Association of America described the numbers as "an anomaly" resulting from a bunching of starts of multifamily buildings being constructed with government subsidies. "They are directly related to financing under the HUD Department of Housing and Urban Development tandem program, which lends itself to a higher level of starts in May and June," he said. "After that, we will go back to the fundamental problems afflicting housing."
Riedy estimated that 57 percent of the May starts of projects with five units or more--which were begun at a 363,000 annual rate, up sharply from April's 251,000 rate--were attributable to the HUD subsidy program.
Nevertheless, the gains in the housing sectors provided some additional evidence that the recession may have hit bottom.
Most of the improvement in housing starts, which were at only an 888,000 annual rate in April, did come in the multifamily area. The rate for single-family homes rose only about 9 percent from 572,000 to 622,000, but still was the highest rate since last September.
Regionally, the big gains came in the South and West. In the Northeast, the level of starts rose only from a 106,000 rate to 122,000, and in the North Central region starts declined slightly from a 158,000 rate to 152,000.
Meanwhile, the number of building permits issued also continued to rise. In the 16,000 places that require permits, the number issued rose about 10 percent to an annual rate of 969,000 from 879,000 in April. That was the highest rate since last June.
Most forecasters expect housing starts to reach about a 1.2-million-unit rate in the fourth quarter of this year if mortgage interest rates ease somewhat.
Separately, the Federal Reserve said that manufacturers used only 70.8 percent of their production capacity in May, down slightly from 71 percent in April. The small decline mirrored the 0.2 percent drop in industrial production for last month that the Fed reported Tuesday. Industrial production had declined 0.8 percent both in March and April.
The 0.2-percentage-point decline in manufacturing capacity utilization compares with drops of 0.5 percentage point in March and 0.7-percentage point in April. The operating rate for producers of industrial materials fell 0.6 percentage point in May to 69.9 percent, after declining 1.3 percentage points in March and 1.1 percentage points in April, the Federal Reserve said.
The operating rate for the iron and steel industry fell to a preliminarily estimated level of about 46.9 percent, the lowest since an industrywide strike in 1959. The utilization rate for the motor vehicles and parts industry rose substantially in May for the fourth month in a row, but the rate still remained below 60 percent.