Is the Housing Market on the Road to Recovery?

by: James Picerno

No one disputes that the housing market has been suffering a sharp correction, but the jury's out on when the recovery will commence.

For those who lean toward the idea that it'll arrive sooner rather than later, Wednesday's report on April housing starts offers a statistical club to beat back the pessimists. Based on seasonally adjusted annual rates, privately-owned housing starts in April rose by 2.5% over the March tally. As our chart below shows, that puts April's annualized total at 1.528 million units-the highest since December.

click to enlarge
Housing Starts 3-yr chart

No one will confuse the rebound (if we can call it that) with a new bull market in housing. At least not yet. The wounds still smart from the fallout of the former decline, which cut starts by nearly 40% in 12 months from January 2006's peak to the trough a year later. But by 2007's reduced standards, so far, this year's looking up.

It's any one's guess if the modest gains this year reveal the seeds of a genuine recovery, or are just the last gasps of a bouncing dead cat. But beggars can't be choosy when it comes to making a case for economic optimism.

In fact, there are still reasons to worry. One economist says that April's rebound in starts is something less than it appears.

The "milder weather appears to have enabled builders in the Northeast to catch up on projects that had been delayed during the winter months," wrote David Resler, chief economist at Nomura Securities in New York, in a note to clients this morning. He opined that "most" of last month's jump "was the result of a revival of starts - particularly multi-family starts in the Northeast. With the nor'easter that hit the Eastern U.S. early in [April], the region may continue the catch-up process for another month. Starts were also up in the West, but elsewhere the data reveal a continuing downward trend."

Especially worrisome, Resler continued, is the 8.9% fall in building permits in April, that is pushing the pace down to its lowest since 1997. "The permits data also reinforce the notion that the increase in starts mainly reflected a catch-up to permits that had been issued during the previous three months but whose start had been delayed," he advised. The bottom line, he concluded: home construction will remain a drag on the economy through the summer.

On that note, now's a good time to remind our readers that September's housing starts will be announced on October 17.