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Instant View: Housing starts rise 1.6 percent in March

NEW YORK (Reuters) - U.S. housing starts rose more than expected in March to their highest level since November 2008 and permits to build new homes scaled a 17- month high, according to a government report on Friday that offered hope the housing market recovery remained on course.

KEY POINTS: * The Commerce Department said housing starts rose 1.6 percent to a seasonally adjusted annual rate of 626,000 units. * February’s housing starts were revised up to show a 1.1 percent increase, which was previously reported as a 5.9 percent drop. * Analysts polled by Reuters had expected housing starts to rise to 610,000 units. * Compared to March last year, starts were 20.2 percent higher. * New building permits, which give a sense of future home construction, jumped 7.5 percent to a 685,000-unit pace last month - the highest level since October 2008, the Commerce Department said. * That compared to analysts’ forecasts for 630,000 units. * Permits were up 34.1 percent from March 2009, the biggest year -on-year gain since February 1992.

COMMENTS:

BILL HAMPEL, CHIEF ECONOMIST, CREDIT UNION NATIONAL ASSOCIATION, WASHINGTON, D.C.:

“This is good news. We now have three months in a row of over an annualized rate of 600,000 housing starts and we’ve been looking to get there since two years ago. We bottomed out in the low 500,000s. The bottom is behind us.

“We don’t know, however, how much of this was driven by the second round of home buyer tax credits. So some of this may be borrowing against future sales. But coupled with the home builders’ index that came out yesterday that showed a lot less pessimism on the part of home builders than we’ve seen in quite some time, that suggests they are seeing something more than just the effect of the tax credit.

“While, this is better news than we expected, on the other hand there still is hanging over the new home construction market very strong competition from the supply of homes for sale through foreclosure. New home construction is likely to grow modestly this year, but we don’t expect significant construction until next year when we work off the supply of foreclosed homes. Many of those foreclosed homes are fairly new, too, and therefore they compete with new construction. There are a lot of really good deals on homes that were built two and three and four years ago. And those homes compete with the ones that are being built now.

“Housing starts bottomed at an annualized rate of 500,000 and now we’re back to 600,000. But the peak before the bubble burst was 2 million. We’re still way way way below where we were. Healthy territory is 1.2 to 1.5 million starts.”

ALAN RUSKIN, CHIEF INTERNATIONAL STRATEGIST, RBS SECURITIES:

“The surge in single family permits that is the main leading indicator within the report, should be regarded as a very positive sign that the recovery is gaining some momentum even within the weakest sector of the economy.

“This data is definitely risk friendly, but the equity market seems to be showing trepidation in taking on key S&P levels in the 1220-25 area, and currency markets are taking their lead from equities.”

JIM PAULSEN, CHIEF INVESTMENT OFFICER, WELLS CAPITAL MANAGEMENT:

“The numbers look real good. The problem we’re going to have is we’re going to have the tax rebate run out and again you wonder if people are jamming activity ahead of that expiration.

“So you’re going to have some people discount these numbers on that basis. By and large I guess what you can say about these is they reinforce a trend that has been going on probably for 18 months, that the level of activity in the housing industry has bottomed but there’s not enough here to suggest we’re lifting off that bottom yet.”

ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES, PITTSBURGH:

“I am hopeful that we will look back at the first quarter of 2010 and say that this is the start of an ongoing trend, this is when residential construction rates started to come off of the bottom, when buyer confidence started to increase.

“The key to everything, and not just to residential real estate but in the broader economy, is everything points back to private sector job creation. That’s what we need to see. We did get a nice employment report for March that showed that four of the last five months we’ve had positive private sector job creation. If that trend continues in a healthy way, then we are one step closer to the transitioning between a government-aided recovery and a self-sustaining recovery.”

DAVID JOY, CHIEF MARKET STRATEGIST, CHAIRMAN OF THE CAPITAL MARKETS COMMITTEE, RIVERSOURCE INVESTMENTS, BOSTON, MASSACHUSETTS:

“Today’s housing data reflect continued improvement in the outlook for home construction activity. Housing starts rose to their highest rate since November, 2008 while building permits rose to their best level since October, 2008. Both were toward the upper end of expectations. February starts were revised up sharply which may help explain the perceived disconnect between previously expressed homebuilder enthusiasm and the data. It also suggests that weather may not have been as big a factor in February as previously believed. The data are generally consistent with other evidence of an improving economic outlook, although housing activity remains at a low level overall.”

ASHA BANGALORE, VICE PRESIDENT, ECONOMIST, NORTHERN TRUST, CHICAGO:

“The improvement we see is entirely in multifamily not in single family starts, so we do not have any positive news there. Multifamily starts (are less important because) that is a small component of the total.

“We haven’t seen growth in single family starts, (those) have basically stalled for several months now.

“There was a revision but still I’m not convinced were seeing any positive news here.”

TOM PORCELLI, SENIOR MARKET ECONOMIST, RBC CAPITAL MARKETS, NEW YORK:

“There is a somewhat interesting dichotomy in the report. Multifamily drove the month’s gains, not single-family which is more important from an overall growth perspective. The underlying data are more mixed and do not support the better-than-expected headline number. Traders may be looking at this as a market neutral report.”

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS, NEW YORK:

“Housing starts certainly outperformed for the first time in several months with a higher than expected figure for March and also a significant upward revision to February. In addition, the old rule that you can’t have a start with a permit meant permits were revised up, too, suggesting that April housing activity will be as good as March. Some of the worries about the housing market have been alleviated by this report.”

MARKET REACTION: STOCKS: U.S. stock index futures hold small losses after housing starts. BONDS: U.S. Treasury debt prices steady at slightly higher levels. DOLLAR: U.S. dollar little changed after data.

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