Updated: 16-May-08 09:25 ET

April Housing Starts

Updated: 16-May-08 09:25 ET

Highlights

• The surprising 8.2% jump in housing starts for April to a 1.032 million annual rate should not be considered the start of the end for the housing recession.  It also should not be dismissed out of hand.  The April level of starts is above the level of December and is almost exactly equal to the average level of starts of 1.031 million for the four prior months.
• Our view is that housing starts will now show general stability compared to the rapid descent of the past two and one-half years.  Starts may drop next month, and a choppy trend will be evident in the months ahead, but the large downward trajectory will give way to a more flat trend.  This is an important change that significantly improves the economic outlook.  The absence of a large negative from the housing sector (replaced by a flat trend) will help GDP numbers in the quarters ahead. 
• Permits rose 4.9% to a 978 million annual rate.  That is far enough below the level of starts to suggest May starts will dip, but it is high enough to reflect an inflection point in the overall trend from February.  Permits were at a 981 million annual rate in February and a 932 million annual rate in March.  The sharp downward trend has moved to a flattening trend. 

Key Factors

Big Picture

• The housing sector has been in a deep recession.  Fortunately, there are now some signs that the rate of decline is slowing, and even that some stabilization is occurring.  The rate of decline in existing home sales has slowed over the past half year.  Sales are not picking up, but a bottoming is preceded by a leveling off.  Now, housing starts and permits are starting to level off as well.  It may well be that the housing sector stabilizes over the summer months, and picks up in the third quarter.  Lower mortgage rates and a stabilizing economy will help.  Lower prices on homes will ulitimately stimulate demand, but for now may inhibit sales as the urgency to buy is mitigated.  The housing sector is a long way from anything that can be called a recovery, but even a general stabilization would help boost GDP numbers by eliminating what has been a major negative on the numbers the past year.