May construction starts rose 10.2 percent from April to the highest level in nearly a year, following two previous months of stability or a slight uptick in new construction starts.
The preliminary May total, released from Reed Construction Data, also included new residential building, estimated as the average of the last three months.
Those statistics, however, are likely to be revised downward putting May starts slightly below April due mostly to the expiration of the homebuyer tax credit.
While the single-family market has weakened briefly, it is still expected to record the largest gain in starts through the end of 2011. Overall, new-home groundbreakings are expected to stabilize during the summer, turn up in the fall and then rise progressively, but modestly, in 2011.
The commercial sector showed increasing strength through May with a net 52-percent month-to-month increase in commercial building starts, a 20-percent increase (the usual seasonal rise) in heavy construction starts and 3- to 4-percent drops (instead of the usual seasonal pick-up) in residential and institutional building starts.
Heavy construction related to roadwork, infrastructure energy projects as well as institutional — hospital, school and government building starts — are consistent with expected trends for the rest of 2010, said Reed Chief Economist Jim Haughey.
But the residential starts change in May is off trend due to the timing of the homebuyer tax credit. Large monthly gains are expected late in the year. This will be a single-family expansion with multi-family starts not expected to improve steadily until 2011. The huge monthly gain in commercial starts is likely random and reverses a large decline in March. A flat or slightly declining trend is expected until late in 2010.
Current commercial starts are heavily small buildings or renovation projects. Of the 52 $50 million or larger projects started in May, only two were developer-financed projects, both for $60 million.