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US home construction surged in April, led by more building of apartments and condos

FILE - In this March 26, 2014 photo, a builder works on a home under construction in northwest Chicago. The Commerce Department reports on U.S. home construction in April on Friday. May 16, 2014. (AP Photo/Nam Y. Huh, File)

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FILE - In this March 26, 2014 photo, a builder works on a home under construction in northwest Chicago. The Commerce Department reports on U.S. home construction in April on Friday. May 16, 2014. (AP Photo/Nam Y. Huh, File)

WASHINGTON - U.S home construction surged in April to its highest pace in five months. Almost all that increase came from the volatile apartment sector, a sign that Americans are still struggling to buy single-family homes.

The Commerce Department said Friday that builders started work on 1.07 million homes at a seasonally adjusted annual rate in April, up 13.2 per cent from March. The gains were driven by a 42.9 per cent jump in the construction of apartments and condominiums. The rate of building single-family homes rose just 0.8 per cent.

The gains for apartment building point to an economy where more Americans rent instead of purchasing a home. Following the housing bust and Great Recession, Americans have been coping with flat wages and job insecurity, making it difficult to save for a down payment. The home ownership rate was 64.8 per cent at the start of the year, down from a peak of 69.2 per cent during 2004.

Homebuilding has yet to fully rebound during the nearly five-year recovery. That has deprived the economy of a traditional source of growth because each single-family home built creates three jobs and generates $90,000 in tax revenues, according to the National Association of Homebuilders.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said that the April construction numbers are "consistent with more strength in rental demand than home sales."

Most of the April gains in multi-family housing were concentrated in the Northeast and Midwest, regions that are bouncing back from the harsh winter where snow and freezing temperatures halted construction.

Applications for building permits, a gauge of future activity, rose 8 per cent to an annual rate of 1.08 million. The gains in permits also came almost exclusively from apartments and condominiums.

Single-family home construction has struggled to fully recover from its winter slowdown.

An index of builder confidence for this month fell a percentage point to 45, the National Association of Homebuilders and Wells Fargo reported Thursday. A reading below 50 indicates that builders consider the conditions for new construction to be poor. The index had been above 50 from June through January.

Builders had been on an annual pace to begin construction more than 1 million homes in December and November. But their efforts slowed in January amid fierce snowstorms and freezing temperatures. The number of starts improved slightly in February and March. But activity slowed in the South and West just as warmer weather was boosting construction in the Northeast and Midwest. The pace of housing starts has dropped 5.9 per cent since March 2012.

Sales of new homes fell 14.5 per cent in March as average prices rose, leaving many would-be buyers unable to afford what was on the market. The number of permits also fell in March, a sign that there might be fewer groundbreakings on new homes in the coming months.

All of this has unfolded amid a broader real estate slowdown after significant sales and price gains in the first half of 2013.

Sales of existing homes moved at a yearly clip of 4.59 million in March, down from 4.6 million in February. Both figures are below the 5.1 million homes sold last year. New homes usually represent about 20 per cent of all homes sold, but that figure has fallen recently to 10 per cent, according to real estate data firm Zillow.

Mortgage rates continue to hover near historic lows, but they have risen over the past year. Average rates on a 30-year, fixed mortgage are 4.21 per cent, up from 3.51 per cent at this time last year, according to the mortgage firm Freddie Mac.

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