Housing starts, building permits – What to expect in markets Tuesday

On Tuesday, new data on May housing starts and building permits will provide another glimpse into the state of the housing market amid a pullback in mortgage rates and mixed signals on homebuilder sentiment.

Economists are widely expecting that U.S. new-home construction rose for a third consecutive month in May. Consensus estimates suggest housing starts rose 0.4% month-over-month to a 1.240 million annualized rate for the month, after a 5.7% gain in April, according to Bloomberg data. Permits, which precede future construction, are expected to have risen 0.2% to a 1.293 million annualized rate.

The report will be released at 8:30 a.m. ET by the U.S. Census Bureau and Department of Housing and Urban Development.

Single-family units led April’s increase in housing starts, with starts for that category rising 6.2%. Single-family permits declined for the month, but were offset by an increase in building permits for multifamily homes, which include apartments and condos.

“Single-family permits fell sharply by 3.7% m-o-m in April and suggest a slowdown in single-family housing starts in May,” Nomura’s Lewis Alexander wrote in a note Friday. “While multifamily permits picked up in April, we expect some payback in volatile May multifamily starts after three consecutive monthly increases.”

Data on the U.S. housing market has been choppy in the second quarter. Mortgage rates have retreated and home price gains have slowed, favoring new home-buyers and construction. Mortgage applications began to trend higher in May after falling all four weeks in April, according to Mortgage Bankers Association data.

But a gauge of homebuilder sentiment unexpectedly declined in June for the first time this year as construction costs and labor concerns mounted.

On Monday, the National Association of Home Builders (NAHB) reported that builder confidence in new single-family homes fell two points to 64 in June, retreating from a six-month high in April and missing consensus expectations. The NAHB survey is viewed as a proxy for the government’s housing starts data.

“Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers,” NAHB chief economist Robert Dietz said in a statement. “Builders continue to grapple with excessive regulations, a shortage of lots and lack of skilled labor that are hurting affordability and depressing supply.”

PHOENIX, AZ - MARCH 05:  Workers pour concrete for a driveway of a new home at the Pulte Homes Fireside at Norterra-Skyline housing development on March 5, 2013 in Phoenix, Arizona. In 2008, Phoenix, Arizona was at the forefront of the U.S. housing crisis with home prices falling 55 percent between 2005 and 2011 leaving many developers to abandon development projects. Phoenix is now undergoing a housing boom as sale prices have surged 22.9 percent, the highest price increase in the nation, and homebuilders are scrambling to buy up land.  (Photo by Justin Sullivan/Getty Images)
Consensus economists expect that housing starts edged up slightly in May, marking a third consecutive month of increases. (Photo by Justin Sullivan/Getty Images)

The lower-than-expected NAHB reading for May, however, was still within the average range seen in recent months. Sentiment levels have remained within a band of between the low- to mid-60s over the past five months. Readings above 50 are considered positive.

Meanwhile, both the Bureau of Labor Statistics and ADP/Moody’s jobs reports pointed to weakness in construction jobs in May, potentially presaging a weaker-than-expected reading on homebuilding Tuesday.

Homebuilder stocks have outperformed the broader market for the year-to-date. The SPDR S&P Homebuilders ETF (XHB) has risen 27.5% in 2019, versus a 15% gain in the S&P 500.

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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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