RISMEDIA, April 20, 2010—Housing is stabilizing but excess inventory and shadow supply are hindering recovery according to the April 2010 Economic Outlook released by Fannie Mae’s Economics & Mortgage Market Analysis Group. The outlook projects economic growth of 3.1% for all of 2010, notwithstanding the recent dip in growth for the first quarter.

“Financial conditions are improving as seen by the unwinding of various programs, most notably the MBS purchase program which ended in March. This is strong evidence that the Fed believes the financial sector can stand on its own,” said Fannie Mae Chief Economist Doug Duncan. “We estimate that June 2009 was the end of the recession, a good sign that we’re moving forward. Nevertheless, significant improvements in the labor market and consumer spending will be the big hurdles as we move toward recovery in the housing market and broader economy.”

New home sales are at record lows and will be slow to recover until inventory of existing homes and the foreclosure overhang are worked off. However, we see key indicators for existing home sales, including pending home sales and purchase applications, are showing good signs of a pickup.

Jobs, a driving force for housing, are now moving in the right direction. Fundamentals of the labor market appear to be improving as layoffs have slowed and hiring is showing signs of life. March payroll employment increased by 162,000, the largest gain in three years; temp employment posted a sixth consecutive monthly gain; and the average workweek increased. On the downside, unemployment will remain elevated for some time, despite the peak unemployment rate of 10.1% likely having occurred in October 2009.

Source: rismedia.com

RISMEDIA, April 20, 2010—(MCT)—Fresh data on new construction of U.S. housing units revealed an upward trend in place since the beginning of the year, with an initial report of February 2010 weakness revised away.

Starts rose 1.6% in March to a seasonally adjusted 626,000 annualized units, the Commerce Department recently reported. This was stronger than the 610,000 pace expected by economists surveyed by MarketWatch.

Even more surprising, February starts were revised higher to a 616,000 pace from the 570,000 previously reported. This was up 1.1% from the prior month. The initial estimate had been a 5.9% drop.

As a result of the revisions, starts have risen for three straight months and are now at their highest level since November 2008. “The bottom line is that there is an upward trend and construction will be moving higher provided that new-home sales improve as well,” said Michelle Meyer, economist at Barclays Capital. Meyer cautioned that one should not get carried away with the improvement as it comes from “an incredibly low level of activity.”

Treasury prices and the dollar added to recent gains after the report. The government cautioned that its monthly housing data are volatile and subject to large sampling and other statistical errors. In most months, the government can’t be sure even whether starts increased or decreased. In March, for instance, the standard error for starts was plus or minus 15.2%. Large revisions are common, but rarely have they been in such a positive direction during this recession.

In March, strength came from multifamily starts. There was a slight decrease in starts of single-family homes. Starts of single-family homes fell 0.9% to a 531,000 rate in March, while starts of multifamily units surged 39.7% to 88,000.

The strength was concentrated in the South; all other regions declined in March.

“This was a modestly positive report. It is nice that construction is improving, but it would be better if the gains were more widespread,” wrote Joel Naroff of Naroff Economic Advisers.

In the past year, starts are down 20.2%. Starts of single-family homes are up 47.1%, while starts of apartments and condominium units have plunged 31.8%.

Building permits rose 7.5% to a seasonally adjusted annual rate of 685,000 in March.

Building permits for single-family homes increased 5.6% to a 543,000 rate—the highest level since August 2008. Many economists consider single-family permits to be the most important number in the government’s release. Permits for apartments rose 15.4% to 142,000.

The National Association of Home Builders recently said its members were more encouraged about their business in April. The builder’s sentiment index rose to 19 in April from 15 in March. “We may be seeing some modest improvement in the fundamentals for new housing construction,” wrote the RDQ economic team in a note to clients.

A tax subsidy for buyers expires at the end of April, and “we will need to see data for May and June before we can put too much weight on this conjecture,” the RDQ note said.

It can take four months for a new trend in housing starts to emerge from the data. In the past four months, housing starts have averaged 606,000 annualized, up from 594,000 in the four months ending in February.

The industry has slashed production of new homes to work off a massive amount of unsold inventory. The number of homes under construction fell 1.4% to a seasonally adjusted 489,000, the lowest on record, dating back to 1970. “Any pickup in demand,” Meyer said, “will warrant an increase in new construction.”

(c) 2010, MarketWatch.com Inc.