PREVIEW-US May housing starts seen slumping post tax credit
* WHAT: Commerce Department May housing starts, building permits
* WHEN: Wednesday, June 16, 8:30 a.m. (1230 GMT)
* WHAT: National Association of Home Builders index on June home builder sentiment
* WHEN: Tuesday, June 15, 10 a.m. (1400 GMT)
REUTERS FORECASTS:
* U.S. housing starts seen dropping about 3.3 percent to a seasonally adjusted annual rate of 650,000 units in May from 672,000 units the previous month. Forecasts from 60 economists ranged from a drop to 600,000 to a rise to 700,000 units.
* U.S. building permits seen rising about 3.3 percent to a seasonally adjusted annual rate of 630,000 units in May from 610,000 units the previous month. Forecasts from 40 economists ranged from a drop to 590,000 units to a rise to 690,000 units.
* The National Association of Home Builders' NAHB/Wells Fargo Housing Market Index seen dropping to a reading of 21 for June from 22 the previous month. Forecasts from 33 economists ranged from readings of 18 to 23.
FACTORS TO WATCH
Housing starts data for May will provide key insight into how the sector fared after the April 30 expiration of popular home buyer tax credits. While economists and housing experts almost universally agree the tax credits front-loaded home sales, just how much was siphoned from future sales remains to be seen.
The tax credits caused housing starts to steadily increase from severely depressed levels through the first four months of this year. Housing starts rose 5.8 percent in April to a 1-1/2-year high. A payback in May is expected, with gains throughout the year expected to unwind.
New building permits, which give a sense of future home construction, are seen rising in May. However, the gain would only partially reverse the 11.5 percent drop in April that sent activity to its lowest level since October 2009.
The data tracks the start of construction of buildings intended primarily for residential use. The start is defined as the beginning of excavation of a building's foundation.
Housing starts are subject to substantial volatility. Most economists believe it is useful to examine trends in construction activity for single-family homes and multi-family units separately because they can deviate significantly. Single-family home building is larger and less volatile than multi-family construction.
Meanwhile, a key gauge of home builder confidence, the NAHB/Wells Fargo Housing Market Index, is seen turning slightly more negative in June.
While historically low mortgage rates and high affordability are positives for the housing market, the sector remains highly vulnerable to setbacks, under pressure from a flood of foreclosures in the pipeline and high unemployment.
The Mortgage Bankers Association, in its latest weekly survey, showed demand for loans to purchase a home, a tentative early indicator of home sales, fell for a fifth straight week, reaching a 13-year low. Refinancing demand also dropped. The MBA will release its next survey on Wednesday.
Freddie Mac on Thursday will release its latest weekly survey on U.S. mortgage rates, which last week showed fixed-rate loans either reaching or nearing record lows.
MARKET IMPACT
Financial markets have already factored in a tepid recovery for the U.S. housing market. Housing starts play a significant role in the U.S. economy because purchases of household furnishings and appliances quickly follow.
Much weaker-than-expected housing starts data could send Treasury prices higher and stocks lower as it could portend a weaker economic recovery. Significantly stronger-than-expected data could cause the opposite reaction.
A strong housing market is bullish for the stock market because the ripple effect of housing to consumer durable purchases spurs corporate profits. In particular, robust data on housing starts could send home builder stocks higher.
But an increase in starts could pressure home prices as it indicates added supply to a housing market that is already flooded with unsold homes and foreclosures.
Improvement in the housing market bodes well for the U.S. economy, as it points to better demand in the sector where the first signs of the latest recession took root. (Editing by Leslie Adler)
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Homes have no where to go but up. Supply/Demand is currently moving to a sellers market and it won’t be long until it is a sellers market again. Foreclosures indicate that they are not much of the big factor everyone thinks they are. Banks with practically free money can sit on them forever and are therefore competitive with the market. When you can buy at 20% to 40% below cost, anybody buying right now would be stupid to have a builder build one for them. I can guarantee in most markets your costs of building new will be much much more. Instead buy a new spec home from a desperate builder. Besides the price, I bought new specs because they are the most rare now and I anticipate will move up quicker than used or foreclosures. I plan to increase my sales prices by 10% a year until they sell. I’ve got the money invested, but I don’t think it will be long before I get my 10%/annum. And if it does, that’s just that much longer I will get 10%/annum. Slam dunk.
In an up market at its peak, there are those who predict the market will continue up to unexplainable new heights. The same is true in a down market for ridiculous lows. I have used these unrealistic predictions as an indicator of a turn around point for years now and it is perhaps the best indicator I’ve ever seen. This works in any market. Like to admit it or not, most people are wrong about future markets and that is why I choose the opposite approach to predicting the future. For example, when the vast majority feel the market will be desperate for years to come, that is the precise time to buy. This type of sentiment is behind us now and is an indication that the turnaround has already begun. Charts support this bearing as well. Remember it was the few investors who called the peak of the housing market and made millions of dollars while millions of people were buying and speculating the housing market would go higher, and that includes the so called experts.
The other thing is that the quicker a market declines, the quicker it goes back up. Check historical charts if you don’t believe me. When the current inventory dries up including foreclosures, and people realize what it costs to build new and finally decide to lock in the lowest interest rates in many many years you will see prices rebound rapidly. Once government programs get going the job market will kick in as well. Coupled with new jobs from a new housing market, jobs will skyrocket too. I would not be surprised if inflationary pressures move home prices to higher highs than the peak of the boom (about 2006) within just a couple of years. Good luck and happy home buying.
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