New U.S. housing starts and permits jumped more than expected in June, propelled by a rise in single-family homes, a government report showed on Friday.
KEY POINTS: * Housing starts climbed 3.6 percent to seasonally adjusted annual rate of 582,000 units, from May's upwardly revised 562,000 units, the Commerce Department said. Single-family home starts jumped 14.4 percent, the biggest rise since December 2004. * Permits in June to break ground, an indicator of builder confidence, leaped 8.7 percent to 563,000 units, the highest since December. * Analysts polled by Reuters were expecting starts and permits to be almost unchanged from June's 518,000 pace for permits and the previously reported 532,000 for starts. * Starts hit a record low 479,000 in April. Compared to the same period a year ago, June starts were down 46 percent.
STEVEN WOOD, CHIEF ECONOMIST, INSIGHT ECONOMICS, LLC, DANVILLE, CALIFORNIA:
Single-family housing starts have bottomed and even recovered at bit although they remain at a very low level, down more than 74 percent from their peak. The substantial declines in single family starts have helped home builders bring inventories of unsold new homes down significantly. This is a necessary condition before residential construction will begin to add positively to economic activity again. However, with new home sales still very weak, with the credit market still dislocated, and with lending standards staying very tight, single family housing starts are likely to remain low, even if above their weakest levels, for an extended time despite low mortgage rates.
CHRISTOPHER LOW, CHIEF ECONOMIST, FTN FINANCIAL, NEW YORK:
Starts are at a very low level but we have established a base in the last six months and I would say this is confirmation that starts are not going to go any lower and the increase in permits might actually see things move up from here. I don't expect housing will contribute to GDP growth for a year or so but the drag on GDP has probably ended.
(Inventory) is a problem. I'm a little surprised at the number since home builders say that they can't build anywhere and recoup their costs. But these are very, very low numbers and imagine we are seeing individuals with contracts to build and they have got a firm buyer lined up along with financing.
ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH, PENNSYLVANIA:
It's a nice increase in housing starts for the month, showing more confidence on the part of builders. We saw a big increase in single-family starts. Usually when we see a lot of volatility in the numbers it often comes from the multifamily side.
Still, though, a very weak number, well below the rate of household formation. It's indicating we have a long way to go to get up to what would be considered a new normal for house building.
On the other hand, I would say that new home sales are still very weak, so it looks like we're still building more houses than we're selling, and this will keep upward pressure on inventory. Even though it's nice to see builder confidence coming back, we don't want to see builders get ahead of themselves and keep these inventory levels high.
There is some expectation here that demand will come back later this fall and into the fourth quarter as the economy starts building some forward momentum. My concern is that that may be overplayed here considering the fact that we're going to have a lingering high unemployment rate for several years to come.
WILLIAM O'DONNELL, HEAD TREASURY STRATEGIST, RBS SECURITIES, GREENWICH, CONNECTICUT:
It's very impressive number given the strength in single-family starts. New home builders are trying to finish up with construction to attract first-time buyers who are smitten with the $8,000 tax credit before it expires at the end of the year.
This is another piece of data for those who see the recession ending soon. But housing starts are still within the range of the past six months and the completion rate is still down.MARTY MITCHELL, HEAD OF GOVERNMENT BOND TRADING, STIFEL NICOLAUS, BALTIMORE, MARYLAND:
One month doesn't make a trend. We expect as we move forward that the housing sector is going to continue to struggle, and much of that number could've been related to foreclosures. The NAHB housing index yesterday showed another 1 point gain, but their comments indicated that home sales were falling though because home appraisals are a lot less than what people expected. That kind of story is going to permeate the housing market. We also face a big bump in the recast curve for option arms that occurs out in 2011, so there should be an uptick in foreclosures as we move out into that period.
DAN GREENHAUS, ANALYST, MILLER TABAK & CO., NEW YORK:
The housing starts data is driven by single-family home sales, which is the bulk of the market. It is a positive in terms of economic output, but actually a negative in a sense that the housing market is still dealing with an inventory overhang. So, it is a near-term positive for the economy, but at the same time the housing market is still trying to work through supply issues. Two consecutive months of housing starts growth is not entirely the positive that the headline conveys.
PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK:
The housing starts rise is clear evidence of a rebound of demand for single-family homes. That's really where the efforts of the Federal Reserve, in narrowing mortgage spreads, and first-time home buyer benefits provided in the stimulus package, are clearly having an effect. It's very convincing evidence of the potential for the general housing market to improve. The sector is still tiny and down 28 percent from a year ago, but it's moved up quite strongly over the last couple of months.
JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT, NEW YORK:
The market's going to like it. It lends credence to the case that we're working our way through and that we've seen the worst. Rates have come down, prices have come down, and that may counteract Bank of America and Citigroup, whose metrics were a little off.
ZACH PANDL, ECONOMIST, NOMURA SECURITIES INTERNATIONAL, NEW YORK:
This is pretty good news in the housing starts. Home building activity remains at very low levels and only adding half as many homes as needed if you look at the underlying demographic trends. But nevertheless, we are picking up quite a bit from the low levels of earlier this year. We are looking for this to continue.
MARKET REACTION: STOCKS: U.S. stock index futures pare losses BONDS: U.S. Treasury debt prices trim gains DOLLAR: U.S. dollar steady at higher levels versus the euro.