Home building jumped to near an 11-year high in May as the U.S. economy continued to show signs of acceleration.
Housing starts ran at a seasonally adjusted annual 1.35 million annual rate in May, the Commerce Department said Tuesday. That exceeded the 1.3 million page expected by economists.
This is the fastest annual pace for home builders breaking ground on new construction since 2007. The pace was 5 percent higher than April and 20.3 percent higher than a year ago.
The faster pace of construction likely explains most of the increase in construction materials. The price of framing lumber, as measured by the Random Lengths Composite Framing Price index, rose 10 percent in May, prompting the National Association of Home Builders to decry Trump administration tariffs on lumber imported from Canada. But with housing starts up 20.3 percent compared with a year prior, it is more likely the bulk of the increase in price was due to rapidly increasing demand.
The big jump in starts also suggests that higher materials costs are not discouraging builders from building. A survey released Monday showed that homebuilder sentiment weakened slightly in June but remained near record highs.
Single-family home building, the largest part of the housing market, rose 3.9 percent to a rate of 936,000 units.
Permit applications, which are forward indicators of future house building activity, declined to a 1.3 million pace, down 4.6 percent from the prior month. That suggests that home building is likely to keep up its currently fast pace but not accelerate further. Economists estimate that a “normal” level of home construction would be about a one to 1.2 million annualized pace.
The drop in permit activity was mostly driven by a decline in apartment building permits, which saw an 8.8 percent decline. Single-family permits were down 2.2 percent, the slowest rate since November.