New Home Construction Increases in May

In what could be viewed as a positive step for the housing market, construction of new homes and apartments - after posting three straight months of declines - increased in last month.

The Commerce Department reported that builders started construction at a seasonally adjusted annual rate of 1.957 million units last month, an increase of 5 percent from the April pace. This better-than-expected increase came after declines of 5.5 percent in April, 7.5 percent in March and 5.9 percent in February.

As delinquent Florida home loans rise, this could be a sign that more individuals can actually afford to safely purchase new property.

Reasons behind increased construction

Analysts attributed the increase to an unusually dry spring in many parts of the country, which allowed builders to start work on more new homes. But they cautioned that construction activity is likely to slide further in coming months as the housing industry slows under the impact of rising mortgage and Florida home loan rates.

In a sign of that expected slowdown, permits for new construction dropped by 2.1 percent in May to an annual rate of 1.932 million units.

Actual construction of new single-family homes in the month was up 2.1 percent to an annual rate of 1.586 million units, however, while construction of multi-family units was up an even stronger 19.7 percent to an annual rate of 371,000 units.

The housing industry set record sales of both new and existing homes for five straight years as home buying was boosted by the lowest mortgage rates in four decades. The Florida home loan market has cooled off, though.

Mortgage rates have been rising steadily this year as the Federal Reserve keeps tightening credit in an effort to keep inflation under control. The 30-year mortgage is currently at 6.63 percent, a full percentage point higher than a year ago. Rising mortgage rates have made it harder for potential home buyers to qualify. Hence, the popularity of risky Florida mortgage loans.

David Seiders, chief economist for the home builders, said that sales could fall by 13 percent from last year’s record and that construction of single-family homes is likely to drop by about 9 percent from last year’s record level.