More Homes Break Ground; Confidence Grows

WASHINGTON — Housing construction perked up in April, supported by an unexpected surge in apartment building, and consumer confidence rose in May, reports said Friday, underscoring the economy’s strength as prospects of higher interest rates loom.

The data--showing stronger-than-expected gains in construction starts and a record high reading for a barometer of consumer confidence--were the last major reports before a meeting of Federal Reserve Board’s policymakers Tuesday.

On Thursday, after closing above 7,300 for the first time, the Dow Jones average of industrial stocks dropped 138.88 points to close at 7,194.67 on Friday. And market-set interest rates jumped, with the 30-year Treasury bond yielding 6.90%, up from 6.86%.

The Commerce Department said construction starts on new homes and apartments rose 2.6% in April to a seasonally adjusted annual rate of 1.47 million as a flurry of building in the South helped boost overall activity.

March starts were revised to show a 7.7% drop to 1.43 million, the department said.

In another report, consumer confidence showed strength, according to a University of Michigan survey. Its May index of consumer sentiment set a record when it rose to 104.6 from 101.4 in April, people who have seen the report said.

Home building in April outstripped Wall Street predictions that starts would rise at a rate of 1.43 million a year.

Much of the gain was driven by starts on apartment buildings. New building in that sector jumped 10.9% after rising just 0.9% in March.

But a big drop in permit applications signals that strength in that area could prove temporary, according to Dave Seiders, chief economist at the National Assn. of Home Builders.

Construction starts on single-family homes rose 0.3% in April to a rate of 1.12 million after falling 9.9% in March.

Mortgage rates have drifted lower since early April, which may have given a boost to new building. The Federal Home Loan Mortgage Corp. said rates on 30-year loans averaged 7.91% this week, down from 8.18% on April 3.

The April home building report showed starts jumping in the South, the nation’s biggest regional housing market, by 11.3% to the highest rate since July 1995. Starts climbed 0.7% in the Midwest, fell 7.4% in the Northeast and fell 6.5% in the West.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Housing Starts:

Seasonally adjusted annual rate, in millions of units.

* Source: Commerce Department