US housing starts fall short of forecasts in May

Homebuilders in the US broke ground on fewer new homes than expected last month, but some economists were sanguine.

According to the Department of Commerce, in seasonally adjusted terms, housing starts increased in May by 4.3% month-on-month, to reach an annualised pace of 974,000 (consensus: 1.1m).

Furthermore, starts on single family homes edged up by just 0.1% on the month, versus a 16.9% leap in so-called multi-family starts.

By regions, starts were up by 12.8% in the Northeast and by 69.8% in the West, but fell by 16.0% in the South and by 1.5% in the Midwest.

It was a better story for construction permits however, which jumped by 14.4% on the month to reach 1.22m, although they too fell short of the median consensus forecast, for a rise to 1.26m.

"Don't worry", Ian Shepherdson, the chief economist at Pantheon Macroeconomics told clients.

"The [Mortgage Bankers Association] today reported that home purchase mortgage applications last week rose to their highest level since late 2008, and are up 20.0% year-over-year. This is why homebuilders’ sentiment yesterday was reported rising in June at its fastest ever pace, and it will be reflected in increased new home sales and construction over the next couple of months.

"In short, the housing market is on track for the fastest and most complete recovery of any sector in the economy."