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Traders Look to Building Permits, Groundbreaking to Pace Housing Recovery

H.S. Borji
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Traders Look to Building Permits, Groundbreaking to Pace Housing Recovery

The US housing recovery will be put to the test Friday when the Commerce Department releases data on building permits and housing starts for the month of April. Both indicators disappointed the markets in March, capping off a weak quarter that was hampered by stricter lending terms and severe weather.

Building permits declined 2.4 percent in March to a 999,000 unit pace, the Commerce Department reported last month. Groundbreaking rose 2.8 percent to a seasonally adjusted annual rate of 946,000.

Friday’s report is expected to show building permits increased by around 3 percent in April, according to a median estimate of market analysts surveyed by Bloomberg. The same survey says groundbreaking rose 3.6 percent in the same month.

A report released today by the National Association of Homebuilders found homebuilder confidence to have remained subdued in May, with the Housing Market Index still capped below the 50 level that separates optimism from pessimism. Confidence levels have yet to recover from February’s nine-month low. Builder confidence declined 10 points that month, as severe weather gripped the housing market.

The housing recovery’s underwhelming performance since last summer has raised concern the US economy may suffer a serious setback this year. Economic growth was virtually non-existent in the first quarter. US gross domestic product reportedly rose 0.1 percent in the first quarter, according to an advance estimate from the Commerce Department. Most analysts believe that figure will be downgraded to show contraction following the release of trade, inventory and construction data.

The Commerce Department will release its revised estimate May 29.

Optimistic forecasts show the US economy may expand 3.5 percent in the second quarter. However, a prolonged housing slowdown, it is feared, could harm builders and construction companies, while impacting consumer spending.

While homebuilding is said to be hampered by lot shortages and unmet demand for skilled labour, the broader housing market is suffering from declining sales, likely a reflection of higher mortgage rates and rising house prices. Thus far, the housing market has not been strong enough to fully absorb the rise in mortgage rates.

Gradual improvements in the labour market could be the silver lining the housing sector needs to reassert itself. However, with American wages stagnating, it is unclear the housing sector can rely on the labour market to kickstart demand. Average hourly earnings were unchanged in April, even as employers boosted hiring at the fastest pace in more than two years.

The US labour market added an average of 238,000 jobs per month between February and April, according to the Labor Department.

The Commerce Department and National Association of Realtors will report on the sale of new and existing homes at the end of next week. The sale of new single-family homes plunged 14.5 percent in March to their lowest level in eight months. The sale of previously-owned homes declined 0.2 percent to reach a new 20-month low.

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