US housing starts rose more than expected in April

U.S. homebuilding increased more than expected in April and activity in the prior month was stronger than initially thought, suggesting declining mortgage rates were starting to provide some support to the struggling housing market.

Housing starts rose 5.7% to a seasonally adjusted annual rate of 1.235 million units last month, driven by gains in the construction of both single- and multi-family housing units, the Commerce Department said on Thursday. Groundbreaking was also likely boosted by drier weather in the Midwest.

Data for March was revised up to show homebuilding rising to a pace of 1.168 million units, instead of falling to a rate of 1.139 million units as previously reported.

The government revised the seasonally adjusted data back to January 2014. The unadjusted series will be revised in July.

Building permits rose 0.6% to a rate of 1.296 million units in April. Building permits had declined for three straight months. Permits for single-family housing, however, fell for a fifth straight month, suggesting a moderation in homebuilding activity in the months ahead.

Economists polled by Reuters had forecast housing starts would increase to a pace of 1.205 million units in April.

The 30-year fixed mortgage rate has dropped to 4.10% from a peak of about 4.94% in November, according to data from mortgage finance agency Freddie Mac. Decreasing mortgage rates reflect a recent decision by the Federal Reserve to suspend its three-year monetary policy tightening campaign.

A survey on Wednesday showed confidence among homebuilders rose to a seven-month high in May. While lower borrowing costs are boosting demand, builders said they “continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability.”

The housing market has been mired in a soft patch since last year. Investment in homebuilding contracted at a 2.8% annualized rate in the first quarter, the fifth straight quarterly decline.

Single-family homebuilding, which accounts for the largest share of the housing market, increased 6.2% to a rate of 854,000 units in April. Single-family homebuilding surged in the Midwest, which had suffered flooding in prior months. Single-family starts also rose in the Northeast and West, but fell in the South, where the bulk of homebuilding occurs.

Permits to build single-family homes dropped 4.2% to a rate of 782,000 units in April.

Starts for the volatile multi-family housing segment advanced 4.7% to a rate of 381,000 units last month. Permits for the construction of multi-family homes rebounded 8.9% to a pace of 514,000 units last month.