March 15, 2010 / 4:45 PM / in 8 years

PREVIEW-US housing starts,building permits seen down in Feb

* WHAT: Commerce Department Feb housing starts, building permits

* WHEN: Tuesday, March 16, 8:30 a.m. (1230 GMT)

REUTERS FORECAST:

* The median forecast for U.S. housing starts is for a drop of about 3.6 percent to a seasonally adjusted annual rate of 570,000 units in February from 591,000 units the previous month. Forecasts from 73 economists ranged from a drop to 500,000 units to a rise to 600,000 units.

* The median forecast for U.S. building permits is for a drop of about 1.9 percent to a seasonally adjusted annual rate of 610,000 units in February from 622,000 units the previous month. Forecasts from 51 economists ranged from a drop to 580,000 units to a rise to 640,000 units.

FACTORS TO WATCH

U.S. housing starts likely decreased in February, largely due to harsh winter weather and lower demand. January, however, had seen a stronger-than-expected rebound in January, which brought activity to its highest level in six months.

New building permits, which give a sense of future home construction, are also seen falling in response to slower new homes sales.

A key gauge of home builder confidence will emerge Monday afternoon when the National Association of Home Builders releases its NAHB/Wells Fargo Housing Market Index.

A housing start is registered at the start of construction of a new building intended primarily as a residence. The start of construction is defined as the beginning of excavation of the foundation.

Housing starts are subject to substantial volatility, especially during the winter months. 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.

The lowest mortgage rates in decades and high affordability helped the hard-hit U.S. housing market find some footing in 2009 after a three-year slump. Recent data, however, points to a sector that is still struggling.

Sales of newly built U.S. single-family homes plunged to a record low in January, according to the Commerce Department. And the National Association of Realtors reported a sharp plunge in sales of previously owned homes in January.

The federal government’s $8,000 first-time home buyer tax credit and a $6,500 credit for home owners buying a new residence will soon expire. Eligible borrowers must sign contracts by April 30 and close loans by June 30.

There is still a huge supply of unsold homes on the market and millions of more foreclosures are in the pipeline.

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 consumer purchases of household furnishings and appliances quickly follow.

Much weaker-than-expected housing starts data could send Treasury prices higher and stocks lower, because 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.

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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