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The market for new homes has been picking up some steam in recent weeks with the numbers of new constructions beginning and housing permits awarded rising to their highest levels for five months.

The Commerce Department reported yesterday that there was a 3.5% increase in the number of housing starts in May compared to the previous month. In particular, groundbreaking for single and multi-family homes in the western US reached its highest level since August last year.

A closer look at the report reveals that there was a rise of 3.7% in single-family home construction, while multi-family construction increased by 2.9%. Altogether, the rate of housing starts is currently around 560,000 units a year, which remains far below the ‘healthy’ rate of 1.2 million new homes each year that is recommended by economists.

Economists will therefore be pleased to see that more housing permits were awarded last month, rising by 8.7% from the previous month, to its highest level since the end of last year. Multi-family homes in particular received a huge boost, with permits for them rising by 23.3% as the demand for rental properties continues to gather pace. Single-family home permits increased by a more modest 2.5% however.

The new homes market remains bogged down by the huge inventory of older homes on the market, with new units finding it especially difficult to compete with the low prices of foreclosed homes.

The overall outlook from a builder’s perspective also remains poor, according to the latest figures from the National Association of Home Builders, whose latest index shows that builder’s sentiment has dropped to its lowest point in nine months.

“Most builders tell us that it is incredibly difficult to build a new family home that can be sold for profit these days – most are lucky if they can recover the construction costs,” said NAHB chairman Bob Nielsen.