Housing starts hit five-month low in May

WASHINGTON - U.S. housing starts hit a five-month low in May as a homebuyer tax credit expired while wholesale prices remained subdued, giving the Federal Reserve ample room to maintain its ultralow interest rate policy.

The weak housing market data released by the Commerce Department Wednesday contrasted with a separate report from the Fed that showed a surge in industrial output, highlighting the uneven nature of the economic recovery.

"It seems clear that the housing market hasn't recovered very much, except for the amount induced by policy over the last year. That's the main reason why GDP growth overall remains somewhat sluggish," said Zach Pandl, a U.S. economist at Nomura Securities International in Manhattan.

The housing data was the latest to suggest the recovery from the worst recession since the 1930s appears to have lost some momentum in May. Economists say a renewed downturn is unlikely.

New home building fell 10 percent to an annual rate of 593,000 units, the lowest since December. A rise in mortgage purchase applications last week after five straight declines offered hope the post-tax credit falloff would be temporary.

The dour housing starts report and a warning from FedEx Corp. that costs related to pensions and retiree medical costs would hit its 2011 profits initially pushed stocks on Wall Street lower. However, key U.S. stock indexes ended flat.

The fall in housing starts in May was the biggest in 14 months and the number of starts was well below the 650,000 units expected by analysts. New building permits, which give a sense of future home construction, dropped 5.9 percent to a 574,000-unit pace, the lowest in a year. That followed a 10.9 percent drop in April and compared with expectations for a rise to 630,000 units.

Starts on single-family homes fell 17.2 percent to a 468,000 unit rate, with permits down 9.9 percent to a 438,000 unit pace. Both were the lowest in a year. - Reuters