RPT-PREVIEW-US May housing starts seen slumping post tax credit

(This is a repeat of a story originally transmitted on June 14)

* 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)