Construction starts of new homes surged ahead in May to a seasonally adjusted rate of 1.791 million, a 19.1 percent increase over April and the highest level in more than 3 1/2 years, the Commerce Department reported yesterday.
Starts of single-family houses rose 14 percent to an annually adjusted rate of 1.51 million homes. The biggest jump came in starts of apartment buildings containing five or more units, however, with a 39 percent increase over April reported.
Industry relief at the high rate of starts after two months of decline was mixed with warnings that the May level cannot be sustained throughout the year.
A scarcity of land ready for development, shortages of materials and recent interest rate hikes will combine to bring the rate down in coming months, several experts said.
"Both months April and May need to be looked at together as a trend," said James Wooten, president of the Mortgage Bankers Association. The May increase is "not a big upsurge that will continue," said Wooten, who is head of Lomas and Nettleton Co., based in Dallas.
Last month's figures show "a surprising amount of strength that will continue in the next month or two," said Michael Carliner of Chase Econometrics.
An increase in the number of building permits issued last month appears to back up Carliner's prediction. Permits in May reached an annually adjusted rate of 1.622 million units, 6 percent higher than the number issued in April and 71 percent more than in May 1982.
Like several other analysts, Carliner predicted the seasonally adjusted annual rate will drop to 1.5 million or 1.6 million, he said.
"Builders are already telling me they are having a hard time finding developable lots," Carliner said. In addition, "the price of lumber has shot up tremendously" and a number of other materials, like gypsum and roofing, are also in short supply.
Lumber costs rose to $264 per thousand board feet in May, a 14.8 percent increase over the April price and 55 percent higher than a year ago, according to Michael Sumichrast, chief economist for the National Association of Home Builders.
Carliner said other indications of future declines in construction include slower rates of apartment rentals and declining number of condominium purchases. Sixty-one percent of the rental apartments built during the fourth quarter of last year were occupied within three months, down from 71 percent for the previous quarter, said Carliner.
Sales of new homes also have shown "a slight decline in the last few months," he added.
The nation's builders, however, are confident that "even with mortgage interest rates increasing slightly in late May and June, there appears to be enough confidence . . . in the market place to maintain a strong level of construction through the summer months," said Harry Pryde, a Seattle developer and president of the National Association of Home Builders.
Pryde's optimism was tempered with the warning that "if mortgage rates continue to climb, home sales could have a hard time catchingup . . . "