US home construction fell last month for the first time since January, as builders struggled with a glut of unsold homes, but permits for future construction rose, offering mixed signals on the housing outlook.
Housing starts slipped 2.1 percent to an annual pace of 1.474 million units in May compared with a 1.506 million unit pace in April, the Commerce Department said on Tuesday. The level of starts was a touch below what was expected on Wall Street, but permits for future groundbreaking rose 3 percent to a faster-than-expected 1.501-million unit rate.
The report weighed on shares of US home builders but had a limited impact on US financial markets overall, even though some analysts said it could signal a sharp slide in the US housing sector was beginning to ease.
"While the report does not yet make the case we are out of the woods, it does suggest that the inventory drawdown is running its course and points to stabilisation in housing," said Alex Beuzelin, senior market analyst with Ruesch International in Washington.
Prices for US government bonds were up, while currency traders focused on an unexpected fall in German business confidence. Major stock indexes were down slightly in mid-morning as disappointing earnings from Best Buy Co Inc revived worries about consumer spending.
SINGLE-FAMILY PERMITS DROP TO 1997 LOW: While building permits rose, the uptick was concentrated in multifamily housing. Permits for starts on single-family homes fell 1.8 percent to their lowest level since July 1997.
"Permits for single-family homes were down once again and that's another indication that things are going to stay weak," said David Resler, chief economist with Nomura Securities International in New York. He said he focuses on single-family homes because that is where the excess inventory lies.
The report showed how hard the once-thriving housing market on West Coast had been hit. Housing starts there were off 38 percent in May from a year ago - the largest year-on-year drop since a 49 percent decline in March 1991.
A sharp slowdown in US home sales has led to a glut of unsold homes on the market and has prompted builders to sharply curtail activity. A report released on Monday showed home-builder confidence at its lowest level in over 16 years.
Excess inventory, growing foreclosures among borrowers with damaged credit and climbing mortgage rates have led economists to extend their timeline for a housing market recovery. Many think the sector won't fully recover until next year. Mortgage rates have risen sharply in recent weeks along with yields on the benchmark 10-year Treasury note, which hit a five-year high of 5.33 percent last week. The 10-year yield has since retreated to about 5.13 percent.
Two separate reports on Tuesday painted a muddled picture for the retail sector. US chain stores sales were sluggish last week according to two reports. Redbook Research said sales growth slowed 2 percent from a year ago. The International Council of Shopping Centers and UBS Securities said in a joint report that sales rose only 1.9 percent.
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