NEW YORK (Reuters) - Home construction starts were up 3 percent in October, the biggest monthly gain in eight months, but building permits were down 6.6 percent to a level not seen in 14 years, a government report on Tuesday showed.
The Commerce Department said housing starts set at an annual pace of 1.229 million units in October from a 1.193 million unit pace in September. It was the biggest monthly increase since February and came after starts tumbled 11.4 percent the prior month. Economists were expecting to see a slight decrease in starts to a 1.17 million unit pace from the initially reported 1.191 million pace.
Building permits fell 6.6 percent in October to a 1.178 million unit pace. That was the lowest level since July 1993 and well below the 1.200 million unit level economists were expecting.
“The permits figure probably provides a better indicator of the continued downtrend. Starts will have to continue to decline in order for the housing market to be able to burn off the excess inventory. That said, we are likely within months of a bottom in starts, and as the pace of construction increases, the negative drag on GDP from residential investment will likely wane throughout 2008.”
“It’s not the great picture that an uptick suggests. This would put additional pressure on the overall market. Builders are really going to take out any spot of stability like the Carolina and Seattle markets. There is no confidence in the national market.
“Permits were down but last month was revised up. There is no reason for builders to get these permits if they don’t see any reason to build. We are seeing a bit of split between the two readings.”
“The numbers overall not convincing, one way or the other. The market had very little reaction to the numbers. The euro is basically where it was, so is dollar yen. These individual numbers are not going to be pointing to any immediate Fed action or inaction. We still have to wait. The housing market in the United States is still weak and nothing in these numbers is encouraging people to think otherwise. The Fed is still going to be data dependent. The Fed is reluctant to add more easing into the market, but the market is probably looking for more easing.”
MARKET REACTION: - BONDS: US Treasury prices were marginally higher Tuesday after mixed US housing starts and building permit data and a poor quarterly result from Freddie Mac FRE.N. The benchmark US 10-year note yield was around 4.07 percent, near its lowest level since 2005. - CURRENCIES: The US dollar was weaker Tuesday morning with the euro at a new record high around $1.4790 and the yen around 110.00. - STOCKS: US stock futures were marginally higher early Tuesday, with the benchmark S&P500 stock futures around 1,442.