By Lucia Mutikani
WASHINGTON (Reuters) - U.S. homebuilding surged to a four-month high in June, but construction activity remains constrained by rising lumber prices and labor and land shortages.
June's better-than-expected increase in housing starts ended three straight months of declines, offering hope that investment in homebuilding was only a modest drag on economic growth in the second quarter.
"A lack of workers is limiting the ability of builders to build, and input costs are also an issue," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania. "I don't expect this part of the economy to add greatly to growth going forward."
Housing starts jumped 8.3 percent to a seasonally adjusted annual rate of 1.22 million units, the highest level since February, as both single-family and multi-family construction rebounded after a recent slump, the Commerce Department said on Wednesday.
May' s sales pace was revised up to 1.12 million units from the previously reported 1.09 million units.
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Economists had forecast groundbreaking activity rising to a 1.16 million-unit rate last month. Starts rose 2.1 percent on a year-on-year basis.
Building permits shot up 7.4 percent to a 1.25 million-unit rate in June, with approvals for the single-family housing segment snapping a three-month losing streak. Permits for multi-family homes construction surged to a five-month high.
Despite last month's surge, homebuilding has lost momentum after strong gains in both the fourth and first quarters.
Starts are below their historic average of 1.5 million, a rate realtors say would eliminate an acute shortage of houses on the market, which has driven up prices.
"We expect the bidding wars to continue for the foreseeable future in many inventory-starved housing markets," said Joseph Kirchner, senior economist at Realtor.com.
Supply bottlenecks are blamed for the slowdown. A survey on Tuesday showed confidence among homebuilders hit an eight-month low in July amid complaints about high lumber prices and shortages of building lots and labor.
Lumber prices have surged after the government in April imposed anti-subsidy duties on imports of Canadian softwood lumber.
The PHLOX housing index rose 0.60 percent on the homebuilding data, outperforming a modestly higher U.S. stocks market. Shares in the nation's largest homebuilder, D.R. Horton, climbed 0.24 percent and Pulverous advanced 0.86 percent.
The dollar rose against a basket of currencies, while prices for U.S. government bonds fell.
BROAD GAINS
The Atlanta Federal Reserve raised its second-quarter GDP estimate by one-tenth of a percentage point to a 2.5 percent annualized rate after the data. The economy grew at a 1.4 percent pace in the first quarter.
Single-family homebuilding, which accounts for the largest share of the residential housing market, surged 6.3 percent to an 849,000 unit-pace last month, also a four-month high.
The sector has lost ground since vaulting to a near 9-1/2-year high in February, despite strong demand for housing, which is being driven by a labor market that is near full employment.
A separate report on Wednesday showed applications for loans to purchase a home rose 1 percent last week.
Single-family starts increased in the Northeast, South and West. They, however, fell in the Midwest.
Starts for the volatile multi-family housing segment increased 13.3 percent to a 366,000 unit-pace, after five straight months of declines. Construction has slowed amid a jump in multi-family homes coming on the market.
Building completions surged 5.2 percent in June to their highest level since November 2016. Completions of multi-family buildings with five units and more soared 17.9 percent also to a seven-month high. There were 601,000 multi-family home units under construction in June.
"The rising supply has been boosting vacancy rates and slowing rent gains in major markets in the past couple years," said Ted Wieseman, an economist at Morgan Stanley in New York. "That should result in a somewhat slower trend pace of multi-family starts."
(Reporting By Lucia Mutikani; Editing by Andrea Ricci)