PREVIEW-US July housing starts seen rising to 560,000

WHAT: U.S. housing starts report for July

WHEN: Tuesday, Aug. 17 at 8:30 a.m. EDT (1230 GMT)

REUTERS FORECASTS

HOUSING STARTS BUILDING PERMITS

Median 560,000 580,000

Minimum 530,000 540,000

Maximum 620,000 600,000

Prior 549,000 583,000

FACTORS TO WATCH:

Economists surveyed by Reuters forecast U.S. housing starts rose to an annualized pace of 560,000 units in July. That would be up 2.0 percent from June's eight-month low 549,000-unit rate.

Building permits that forecast future activity are forecast at a 580,000-unit annual rate, which would be a 0.5 percent fall from June's 583,000.

The data will be released by the Commerce Department at 8:30 a.m. EDT (1230 GMT).

The report is released on the same day the U.S. Treasury Department convenes a meeting with representatives from the mortgage industry and other housing specialists on how to restructure mortgage finance giants Fannie Mae and Freddie Mac, which have been in government conservatorship since late 2008.

The Treasury is not expected to present a formal proposal to Congress about how to keep mortgage finance flowing until early 2011 but Treasury Secretary Timothy Geithner already has implied that some continued government role will be needed.

Recent housing data have painted a picture of an industry struggling for traction after the expiry of a government homebuyer tax credit in April.

The National Association of Realtors last month said the 3.99 million previously owned homes for sale at the end of June would take about 8.9 months to deplete at the June sales pace. That's the highest monthly supply since August 2009.

On Monday, the National Association of Home Builders said U.S. home-builder sentiment dropped for a third straight month in August to the lowest level in nearly 1-1/2 years.

The National Association of Home Builders/Wells Fargo Housing Market Index slipped one point to 13, contrary to expectations for a rise to 15 and implying little optimism about a quick recovery for the housing sector.

A reading below 50 indicates more builders view sales conditions as poor than good. The index has not been above 50 since April 2006.

ANALYST COMMENTS:

MF GLOBAL:

"The recovery in starts has been and probably will continue to be restrained by still-high inventories of vacant existing homes. Those inventories are likely to trend lower in coming quarters.

"The current pace in starts is probably about one million (at an annual rate) below the long-term trend based on household formation and replacement building, consistent with a clear downtrend in inventories of vacant homes over time.

"The weakening in starts in May and June likely reflected payback for exaggerated strength in earlier months rather than the start of a significant new downtrend."

ACTION ECONOMICS:

"The back-to-back declines in May and June starts more than erased the 12 percent cumulative surge in March and April.

"However, the 2.1 percent rise in permits was the sliver-lining of the June report, with the climb in permits hopefully front-running a bounce in starts.

"Indeed, the rise in permits back above the level of starts during June, combined with the wet weather during the month in the northern half of the country that likely depressed June starts, is supportive of our projection for a July starts rise that could would leave the June starts figure as the post-deadline bottom."

* IFR MARKETS (a Thomson Reuters division):

"Although both starts and permits remain well below their historical norms (which are closer to about 2 million for both series), they may still be too high to cut seriously into the excess inventories weighing on the housing market."

"We look for a slight rebound in single-unit permits but a plunge in multi-unit permits."