September 21, 2010 / 12:43 PM / 9 years ago

Instant view: Aug housing starts rise more than expected

NEW YORK (Reuters) - Housing starts increased more than expected in August to their highest level in four months and permits for future home construction rose, government data showed on Tuesday, suggesting the embattled housing market was starting to stabilize following the end of a tax credit.

KEY POINTS: * The Commerce Department said housing starts rose 10.5 percent, the largest increase since November, to a seasonally adjusted annual rate of 598,000 units. * July’s residential construction was revised down to show a 0.4 percent gain, which was previously reported as a 1.7 percent increase. * Analysts polled by Reuters had expected housing starts to rise to a 550,000-unit rate. * Compared to August last year, housing starts were up 2.2 percent. * New building permits rebounded 1.8 percent to a 569,000-unit pace last month after an unrevised 4.1 percent drop in July, lifted by a 9.8 percent rise in permits for multi-family units. * Analysts had expected a 560,000-unit pace in August.




“Gains in residential construction in August were driven by sharp increases in multi-family starts and permits, a sector where activity is highly volatile from month-to-month. Given the supply of homes for sale, elevated housing vacancies, and weak homebuilder confidence, we do not expect housing construction to be a source of growth in the foreseeable future. However, with levels of activity in this sector so low, residential construction is unlikely to provide any significant drag on the economy.”



“Housing starts jumped higher in August after plunging in May and June in the aftermath of the expiration of the home buyers’ tax credit at the end of April. Single-family starts rose for the first time in the past 4 months while multifamily starts soared for the second straight month. Nevertheless, both single-family and multifamily housing starts are still near their lowest levels of the past 50 years. Home sales and housing construction are struggling to find a fundamental level of support in the absence of tax credits.”


“U.S. housing starts were much stronger than expected. On the day and on the month, this was a very good upside surprise. Still housing starts are at very low levels but we’re clearly seeing a solid bottom in the housing market. It’s too early though to call it a housing market recovery. Overall, this is good for risk appetite that’s why we saw a pop in dollar/yen. Euro/dollar, on the other hand, ticked lower and of late the pair’s knee-jerk reaction has been based on orthodox economic theory and not about risk. The theme changes though in the afternoon when it becomes a risk-off, risk on environment.”


“The starts number is a solid rebound from the low of July, but the number is still distorted from the tax credit. I still see a recovery in housing for the rest of the year.

“Consumers remain hobbled by the economy which remains undeniably weak. This will keep home builders in a conservative stand. They absolutely don’t want to get too far ahead of buyers and get stuck with inventory. They are also worried about the shadow inventory from foreclosures. I also expect more consolidation among home builders in the next year or two with weaker ones absorbing into stronger.”

MARKET REACTION: STOCKS: U.S. stock index futures add to gains after stronger-than-forecast U.S. housing starts data. BONDS: U.S. Treasury debt prices reduce gains. DOLLAR: U.S. dollar pares losses versus yen.

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