Housing starts, permits rise 0.8% in March

Conflicting views of whether housing market has stabilized

Curious report on MarketWatch today, based on a Tuesday estimate by the Commerce Department:

According to a story by Rex Nutting, construction of new homes increased 0.8% in March to a seasonally adjusted annual rate of 1.518 million, the highest level this year. Warmer weather is thought to be at the heart of the increase.

Building permits also increased 0.8%, reaching a seasonally adjusted annual rate of 1.544 million last month. Permits had fallen in 12 of the previous 13 months.

The figures were slightly higher than those expected by economists surveyed by MarketWatch. The median estimate for housing starts was 1.50 million, while permits had been expected to be at 1.52 million.

Housing starts are still down 23% from March 2006, while permits are off 26%.

However, the figures appear to show renewed optimism on the part of builders that the worst of the correction in the housing market is behind us. Many agree that month-to-month figures are too unreliable to make firm judgments based on one month.

"The freefall is over," Bob Walters, chief economist for Quicken Loans, told MarketWatch. "The steep plunge has now found a floor." He also noted that starts have been in the range of 1.5 million for five months.

Bill Hampel, chief economist for the Credit Union National Association, cautioned against overt enthusiasm, predicting the March figures "will be the highest we'll see for some time to come."

Hampel added that March's starts were boosted by favorable weather, and he noted that homebuilders are "very pessimistic." Last time anyone checked, though, the weather hasn't been all that warm, yet warmer weather is indeed on the way.

The government cautioned that the monthly figures are unreliable. For housing starts, the standard error is so high that the reported figure could be off by as much as 11% either way.

Meanwhile, the completion of new homes fell 0.7% to a seasonally adjusted annual rate of 1.63 million last month, an indication that builders are ramping down their inventories.
In a separate reports:

· Labor Department reported that consumer prices rose 0.6% in March, while core prices rose just 0.1%. Both figures measuring retail-level inflation were below expectations.

· Also Tuesday, the Federal Reserve said industrial output fell 0.2% in March as utility output plunged.

Like I have said previously in this space, mass media tends to overplay the down side to the current housing situation while failing to recognize the positives. The report by MarketWatch is a breath of fresh air, however tempered it may be.