U.S. Housing Starts Rise In April; Supply Challenges Remain.

WASHINGTON (Reuters) - U.S. housing starts increased more than expected in April and activity in the prior month was stronger than initially thought, suggesting declining mortgage rates were providing some support to the struggling housing market.

A home for sale sign hangs in front of a house in Oakton, Virginia March 27, 2014. REUTERS/Larry Downing Land and labor shortages, however, continue to constrain builders’ ability to construct more lower-priced houses, the segment of the market that has suffered an acute shortage of inventory and weak sales. Those supply challenges were highlighted by a drop in the number of homes under construction to a seven-month low in April.

“The housing market is coming back a little,” said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. “Building activity is what really matters for economic growth and right now, that is softening.” 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.

Building permits rose 0.6% to a rate of 1.296 million units in April, after three straight monthly declines. Single-family building permits, however, fell for the fifth straight month, suggesting a moderation in groundbreaking activity was likely.

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.”