Rise in Housing Starts Unlikely to Begin a New Trend

The unexpected 8.2% rise in housing starts is welcome news but it seems unlikely to be the beginning of a new trend, economists say.

U.S. housing starts rose well above expectations to 1032k in April, up from an upwardly revised 954k in March, according to the U.S. Commerce Department on Friday morning. The consensus for was looking for a decline to 935k level.

Despite the increase, single-family homes, the component in the report which accounts for four-fifths of housing starts, fell 1.7% to 692k, compared to the previous month's 704k level.

Brian Bethune, chief U.S. financial economist at Global Insight, said the decline in single-family starts "certainly makes sense given the level of inventory, but the other numbers are puzzling."

He said he wouldn't get too excited about the report, noting there are too many seasonal issues that can throw off the numbers, so this one month could merely be statistical noise. Even the early Easter may be enough to skew the data, he added.

Housing starts are also down by 50% since April 2007, so even with this increase, the number is low "by any historical standard," he said.

Charmaine Buskas, senior economics strategist at TD Securities, called the report "surprisingly better than expected" but said there are few reasons to think such a monthly rise will keep up in the coming months.

She noted that builder sentiment is at its second lowest pace ever, many subprime mortgages are under water, consumers are looking increasingly stretched and almost a year of housing inventory is creating downward pressure.

In sum, it doesn't look like builders will turn things around, she said.

TD's Millan Mulraine added that "it may be tempting to conclude that the U.S. housing sector may have gained some positive traction. However, because the boost has mostly been in the volatile multi-units segment of the sector (and because the rebound simply undoes the prior month's drop), expectations that the sector may be nearing a bottom might be slightly overblown. Overall activity is still well lower than it was just two months ago."

Multiple-family homes contributed 340k to housing starts, far above the previous month's 250k level.

Meanwhile, building permits totalled 978k in April, an increase of 4.9% month-over-month from 932k last month and above the consensus call for 915k.

By Patrick McGee and edited by Nancy Girgis