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WRAPUP 1-U.S. housing starts drop sharply; building permits rise modestly

* Housing starts drop 9.5% in April

* Single-family starts tumble 13.4%; multi-family up 0.8%

* Building permits rise 0.3%; single-family down 3.8%

WASHINGTON, May 18 (Reuters) - U.S. homebuilding fell more than expected in April, likely pulled down by soaring prices for lumber and other materials, but construction remains supported by an acute shortage of previously owned homes on the market.

Housing starts tumbled 9.5% to a seasonally adjusted annual rate of 1.569 million units last month, the Commerce Department said on Tuesday. Data for March was revised lower to a rate of 1.733 million units, still the highest level since June 2006, from the previously reported 1.739 million units.

Economists polled by Reuters had forecast starts would fall to a rate of 1.710 million units in April.

Starts surged 67.3% on a year-on-year basis in April. Groundbreaking activity dropped in the Midwest and the densely populated South, but rose in the Northeast and West.

Demand for bigger and more expensive accommodations amid the COVID-19 pandemic, which has forced millions of Americans to work from home and take classes remotely, has fueled a housing market boom. But the virus has disrupted labor supply at saw mills and ports, leading to shortages of lumber and other raw materials, boosting prices and threatening to sideline first-time homebuyers from the market.

U.S. stocks were set to open higher following better-than-expected results from Walmart and Home Depot . The dollar slipped against a basket of currencies. U.S. Treasury prices were mixed.

LOW INVENTORY

The inventory of previously owned homes is near record lows. Tariffs on steel imports are also adding to building costs. Lumber prices surged 89.7% on a year-on-year basis in April, according to the latest producer price data.

A survey from the National Association of Home Builders on Monday showed confidence among single-family homebuilders holding steady in May. The NAHB noted that “some builders are slowing sales to manage their own supply chains.”

According to an Institute for Supply Management survey published early this month, businesses in the construction industry reported challenges finding and retaining skilled and unskilled workers, with some companies saying “we are not accepting all the work that we could if we had the labor.”

Permits for future homebuilding rose 0.3% to a rate of 1.760 million units in April. They soared 60.9% compared to April 2020.

Single-family homebuilding, the largest share of the housing market, dropped 13.4% to a rate of 1.087 million units in April. It retreated further below the more than 14-year high scaled in December, a sign that builders could be holding back because of the more expensive materials.

Building permits for single-family homes fell 3.8% to a rate of 1.149 million units.

Starts for the volatile multi-family segment rose 0.8% to a pace of 482,000 units. Building permits for multi-family housing projects accelerated 8.9% to a rate of 611,000 units.

Housing completions fell 4.4% to a rate of 1.449 million units last month. Single-family home completions edged up 0.1% to a rate of 1.045 million units.

Realtors estimate that single-family housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to close the inventory gap.

The stock of housing under construction increased 0.6% to a rate of 1.312 million units. (Reporting by Lucia Mutikani; Editing by Paul Simao)

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