U.S. home construction rose 3.6% in May as builders battled a surge in lumber prices that have made homes more expensive

The May increase left construction at a seasonally adjusted annual rate of 1.57 million units, the Commerce Department reported Wednesday.

Applications for building permits, looked to for indications of activity ahead, fell 3% in May to a seasonally adjusted annual rate of 1.68 million units.

Housing has been one of the standout performers during the pandemic-triggered recession.

But many economists believe that the surge in home building and sales over the past year may begin to slow, especially for single-family homes.

�We expect starts to mostly move sideways over the balance of 2021,� said Nancy Vanden Houten, lead economist for Oxford Economics. �Strong demand, a need for inventory and homebuilder optimism will keep a floor under activity, but builders continue to face supply constraints that may hamper or at least postpone construction.�

Builders are getting one break. Lumber prices, which surged to record levels this year, have started to come down, suggesting that a speculative bubble that had developed in lumber prices is beginning to deflate.

Rising material prices and supply chain shortages were blamed for a drop in builder confidence this month The National Association of Home Builders/Wells Fargo survey reported this week that builder confidence had declined two points to 81 in June, still a high level.

Building activity has been on a rollercoaster this year. The 3.6% overall gain in construction starts in May followed a 12.1% plunge in April, which followed a 19.2% surge in March that pushed housing starts to an annual rate of 1.73 million units, the fastest pace since the housing boom of the mid-2000s.

For May, the 3.6% increase reflected a 4.2% increase in single-family home construction to a rate of 1.1 million units and a 4% rise in construction of apartments, which climbed to a rate of 465,000 units.

By region, housing construction fell a sharp 22.4% in the Northeast but rose in every other region. The gains were led by a 29.9% increase in the Midwest. Construction rose 3.8% in the South and 1% in the West.

The National Association of Realtors released a report Wednesday contending that there was an �underbuilding gap� of between 5.5 million and 6.8 million housing units because of decades of under-investment in home construction.

Growth in the nation�s housing inventory has slowed significantly since the turn of the century with every region of the country being affected, the report said.

�The state of America�s housing stock … is dire with a chronic shortage of affordable and available homes,� the report said, recommending that officials work to remove barriers to new development.

(AP)