October housing starts seen edging higher

NEW YORK (Reuters) - New U.S. home building and permits to start new houses likely climbed in October, based on a Reuters survey of economists.

Housing starts are expected to have climbed by about 1.7 percent to 600,000 annual units on a seasonally adjusted basis from 590,000 in September, based on a poll of 73 economists.

Building permits are estimated to have risen by around 0.9 percent to 580,000 units from 575,000, the median forecast in a survey of 49 economists found.

Starts rose 0.5 percent in September while permits declined 0.9 percent.

The Commerce Department is scheduled to report the latest home building activity at 8:30 am on Wednesday.

An extension and expansion of the federal home buyer tax credit this month should stimulate home building activity further in coming months, economists agreed.

The National Association of Home Builders/Wells Fargo Housing Market Index on Tuesday, conducted prior to the extension, was unchanged at a revised 17 reading in November.

While both the current single-family home sales measure and the index of prospective buyers were flat, the gauge of expected home sales over the next six months rose, the NAHB said.

Still, while unsold inventory has been pared it remains burdensome and could mount with rising unemployment and foreclosures, economists said. That could keep a lid on construction activity.

The multi-family sector continues to be volatile and may not have reached bottom, the economists said,

A sampling of forecasts and analysis on the upcoming starts and permits report follows:

RBS:

FORECAST: 590,000 STARTS

"From July to September, housing starts have posted readings of 593,000, 587,000, and 590,000, respectively, suggesting that groundbreaking activity is leveling off after soaring by 21 percent from January to June.

"However, steady readings recently mask movements in the underlying components. Multi-family starts have been trending sharply lower, whereas single-family starts have continued to rise. In September, multi-family starts were 59 percent below their February level after falling in five of seven months.

"Meanwhile, single-family starts in September were 40 percent above their February level and have dropped only once in the past seven months.

"Given that Congress recently extended the home buyer tax credit until April 30 and expanded it as well, housing starts may hold up well in the coming months. In any case, RBS expects that housing starts in October were little changed again."

YOUNG KIM, STONE & MCCARTHY RESEARCH ASSOCIATES:

FORECAST: 595,000 STARTS, UP 0.8 PERCENT

585,000 PERMITS, UP 1.7 PERCENT

"A lower overhang of unsold new homes may have contributed to the better pace of starts and permits last month. However, builders will want to keep new-home production low at a time there is high unemployment and weak job growth.

"Much of the month-to-month volatility in housing starts is related to the multi-family units. Starts of multi-family units declined 15.2 percent in September after rising 20.7 percent in August. The trend has been more consistent for all-important single-family starts. Outside of August starts of single-family units have been positive every month since March.

"In year-over-year terms, housing starts has been persistently negative since March 2006 although the declines have been slowing. An October reading in line with our forecast would translate into a -22.0 percent y-o-y growth rate vs. -28.2 percent in September. This would be the smallest since October 2007, when starts declined 15.2 percent.

MICHELLE MEYER, ECONOMIST AT BARCLAYS CAPITAL:

FORECAST: 605,000 STARTS, UP 2.5 PERCENT

We should continue to see inventories fall and builders should continue to increase construction. The housing starts data can show pretty large monthly changes, but it is still at a very low level. At the peak the rate was 2.2 million, the natural rate of starts is 1.5-1.6 million, so clearly the construction is still relatively feeble. We are still at early stages of a housing recovery and overall economy, but the direction is positive."

UBS:

FORECAST: 575,000 STARTS, 560,000 PERMITS:

"Housing activity appears to have flattened out very recently after surging in the first half of 2009. Some of the recent hesitation in activity likely reflected uncertainty on the part of builders about the impact of the expiration of the first-time homebuyer tax credit.

"In light of the still elevated rental vacancy rate, it is unclear whether the volatile multi-family category has bottomed.

"Starts will likely need to be low for a while to reduce vacancies. However, the current pace is probably about 1 million units at an annual rate below the long-term trend based on household formation and replacement building. Household formation is also cyclical."

(Reporting by Lynn Adler, additional reporting by Julie Haviv; Editing by Andrew Hay)