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US home construction rises 6.8 percent in May

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Keith Srakocic/AP/File

(Read caption) Construction is under way on the infrastructure of a housing development in Zelienople, Pa., last month. US housing starts rose 6.8 percent to an annual rate of 914,000 in May, but analysts had expected 950,000 starts.

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With the housing market ramping back up and buyer demand for homes increasing in certain parts of the United States, a key piece in the recovery’s puzzle might be moving into place: Builders seem poised to build again, but not quite at the pace many in the industry had hoped.

US housing starts rose 6.8 percent to an annual rate of 914,000 in May, and 28.6 percent from a year ago. It was a decent gain, but less than the 950,000 starts analysts expected. Most of the gains were in multifamily starts, which surged 21.6 percent to a rate of 315,000 for the year. (It’s a volatile measure: In April, multifamily starts plunged 32.2 percent.) Single-family starts, meanwhile, edged up just 0.3 percent, according to the Commerce Department.

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All told, it’s not a terrible report: Construction is certainly picking up, and continuing low mortgage rates, price acceleration, and a need for increased inventory in several markets make it probable that the trend will continue. But the data is a bit deflating in light of the news, via a separate survey, that home builders are more optimistic about the state of the housing market than they’ve been in nearly seven years.

The National Association of Home Builders (NAHB) index of home builder sentiment rose to 52 from 44 in May, blowing expectations out of the water and seemingly indicating that construction was poised for a big upswing. May’s numbers didn’t bear that out. "There remains a substantial disconnect between what homebuilders are saying and what they are actually doing," Josh Shapiro, an economist at MFR Inc. in New York, wrote in an e-mailed analysis.

“We expect a slow rise in single family starts going forward," he continued. "However, incredibly low mortgage rates and the drumbeat in the media that housing has bottomed are a powerful incentive for those who can afford a home and qualify for a mortgage to take the plunge, and this could create a better single family housing environment than we have been expecting."

Permits to build homes fell 3.1 percent in May to a 974,000 annualized pace. Permits for multi-family homes dropped 10 percent to 352,000 pace. Single-family permits rose 1.3 percent to a 622,000 pace, their highest level in five years.