New home sales hit 6-month low, prices drop (Reuters)

WASHINGTON (Reuters) – Sales and prices of new single-family U.S. homes fell in August despite historically low mortgage rates, underscoring the difficulties policymakers face in efforts to boost the moribund housing sector.

A stagnant job market and a big overhang of unsold existing homes have combined to keep new home sales on the rocks even as mortgage rates returned to lows not seen since at least the early 1970s.

New home sales slipped 2.3 percent last month to a 295,000 annual rate, a six-month low, the Commerce Department said on Monday. That was in line with analysts' forecasts and did little to allay fears the United States could slip back into recession.

The median sales price also moved lower from the previous month and was 7.7 percent below year-ago levels.

"There's no sign yet that low mortgage rates are helping the housing sector," said Gary Thayer, a strategist at Wells Fargo Advisors in St. Louis, Missouri.

The U.S. Federal Reserve last week unveiled new measures to ease credit further for home buyers, but analysts caution that the level of mortgage rates is not the main hurdle to buying.

Many economists are skeptical attempts to lower rates will help much because millions of Americas owe more on their mortgages than their homes are worth, which can effectively chain them to their properties while also preventing them from refinancing to lower their monthly costs.

Heavy debts taken on during the housing boom in the previous decade are also making consumers cautious to spend.

After economic growth slowed sharply in the first half of the year, the United States looks especially vulnerable to any escalation in the European debt crisis.

The S&P 500 stock index (.SPX) rose despite the poor data as global equities climbed on hopes that Europe was tackling Greece's debt woes.

Euro zone officials are working on ways to magnify the financial firepower of their bailout fund to fight the region's sovereign debt crisis more effectively.

In its monthly report on single-family home sales, the U.S. government raised its estimate for July's sales pace slightly to 302,000 units. Also, the supply of homes available on the market in August dropped to a record low.

Data last week showed new construction of U.S. homes fell in August, dragging on economic growth.

"The housing sector can't get any worse," said Michael Englund, an economist at Action Economics in Boulder, Colorado.

(Additional reporting by Ellen Freilich and Richard Leong in New York; Editing by Neil Stempleman)

(jason.lange@thomsonreuters.com; Tel: +1 202 310 5487; Reuters Messaging: jason.lange.reuters.com@reuters.net))

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June housing starts at 6-month high (Reuters)

WASHINGTON (Reuters) – Housing starts scaled a six-month high in June and permits for future construction unexpectedly increased, a government report showed on Tuesday, partly reflecting growing demand for rental apartments.

The Commerce Department said housing starts increased 14.6 percent to a seasonally adjusted annual rate of 629,000 units, the highest level since January, as ground breaking for multi-family units soared 30.4 percent.

But May's starts were revised down to a 549,000 unit pace, which was previously reported as a 560,000 unit rate.

Economists polled by Reuters had forecast housing starts rising to a 575,000-unit rate. Compared to June last year, residential construction was up 16.7 percent.

U.S. stock index futures extended gains after the housing data, while government debt prices extended losses. The dollar pared losses against the yen.

Despite the June increase, the housing starts rate remains less than a third of the peak it reached during the housing boom.

"In the grand scheme of things, it's nice to see it jump higher, but it doesn't take us out of the range we've been in," said David Mann, senior currency strategist, Standard Chartered in New York. "So there's still an extremely long way to go before we can be sure there's a serious recovery underway."

Residential construction accounts for about 2.4 percent of gross domestic product and indications are that it remained a drag in the second quarter after shrinking at a 2.0 percent annual rate in the first three months of 2011.

The government will release its first estimate for second-quarter gross domestic product on July 29.

Growth estimates for the April-June quarter currently range between 1 percent and 2.3 percent. The economy grew at a 1.9 percent pace in the first three months of the year.

An overhang of previously owned homes on the market has left builders with little appetite to break ground on new projects and is frustrating the housing sector's recovery two years after the end of the 2007-09 recession.

Previously owned homes are currently selling well below their cost of construction as a deluge of foreclosed properties continues to depress prices.

Data on Wednesday is expected to show that existing home sales rose 2.9 percent to a 4.90 million unit pace in June, according to a Reuters survey, but not enough to whittle down bloated inventory.

Confronted with plummeting home values, Americans are shunning home ownership, pushing up demand for rentals.

That has resulted in a rise in groundbreaking for multi-family homes in recent months and is helping construction to stabilize.

A survey on Monday showed sentiment among home builders edged up in July from a nine-month low in June, but they saw no increase in prospective buyers.

Last month, housing starts for multi-family homes soared 30.4 percent to a 176,000-unit rate, while single-family home construction -- which accounts for the largest portion of the market -- increased 9.4 percent to a 453,000-unit pace.

New building permits rose 2.5 percent to a 624,000-unit pace last month. Economists had expected overall building permits in June to edge down to a 600,000-unit pace.

Permits were boosted by a 6.9 percent rise in the multi-family segment. Permits for the construction of buildings with five units and more increased 8.2 percent to their highest level since October 2008. Permits to build single-family homes edged up 0.2 percent.

New home completions fell 1.7 percent to 535,000 units in June.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)

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Instant view: Housing starts hit 6-month high (Reuters)

NEW YORK (Reuters) – Housing starts rose more than expected in June to touch a six-month high and permits for future construction unexpectedly increased, a government report showed on Tuesday, likely reflecting growing demand for rental apartments.

COMMENTS:

LINDSEY PIEGZA, ECONOMIST, FTN FINANCIAL, NEW YORK

"It's stronger than expected in starts and housing. But nevertheless despite this out-sized monthly gain, it really does not suggest a return to strong housing market. We are still very much bouncing along the bottom. We have seen this volatility here and there.

"While it certainly doesn't suggest renewed weakness in the housing market it does not suggest we are turning a corner. When we look at the breakdown regionally, the majority of activity we saw was concentrated in the south. So I am wondering if there was some sort of seasonal factor, some sort of area specific factor that is driving that activity. We don't see it throughout the country. Certainly something is driving demand down in the south. But it's nothing to get too excited about. It is still a very tepid environment.

ALAN LEVENSON, CHIEF ECONOMIST, T. ROWE PRICE, BALTIMORE

"There's really not a reason to suspect that a long-awaited cyclical recovery is beginning now. We had a bigger month-to-month increase in January to a level a little bit higher than the level in June. In my view we're still chopping around in a range that started a year ago.

"But it's good news, it's better than expected. I'll take it.

"I do not think one can interpret the increase in starts this morning as the beginning of the far side of the 'V' in the cycle...but it certainly confirms that housing is not going to be a drag on GDP anymore in terms of housing construction. Again, starts have to start climbing at some point, but I can't give you a good reason why it should be this month.

"Housing construction going forward is stable to higher, not stable to lower."

ALAN LEVENSON, CHIEF ECONOMIST, T. ROWE PRICE, BALTIMORE, MD

"They're volatile data and our view has been that over a long period of time, housing starts have to just about double to keep up with where our population is going to be. An oversupply of vacant units that's suppressing our recovery."

"This is not necessarily the new trend. My general characterization of housing is that it's overly stagnant. In our forecast, we have very little growth in housing starts over the next 18 months, especially after such a deep recession. This is certainly good news, and it will help growth prospects at least at the margin in the near term. But housing is such a small part of the economy, so not going to have huge implications."

"The level that we've gotten to is back about to where we were in January of this year."

"It's a positive surprise in the economic data, something positive from what's been a beaten down sector, I think what's going on in Europe and Washington will have greater potential to move markets than housing starts numbers."

TOM PORCELLI, U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

"You take the good news when you can get it, because there hasn't been much of it. While this beat is sizable and the first since January, context is everything. We're only at the top of recent lows. This doesn't change our call on residential construction one bit.

"I think the bond market is focused elsewhere. You have this house vote today, you have continuing, lingering focus on the debt ceiling. You hear it come up in conversations. No one wants to be caught flat-footed. Depending on how this unfolds, you don't want to put on any sizable short or long positions."

DAVID MANN, SENIOR CURRENCY STRATEGIST, STANDARD CHARTERED, NEW YORK

"In the grand scheme of things, it's nice to see it jump higher, but it doesn't take us out of the range we've been in. So there's still an extremely long way to go before we can be sure there's a serious recovery underway. It's good to see but we need to see a lot more of this for a good few months before we become less concerned about the housing market."

DAVID SLOAN, ECONOMIST, IFR ECONOMICS, A UNIT OF THOMSON REUTERS

"June housing starts and permits with respective gains of 14.6%, to 629k, and 2.5%, to 624k, both comfortably exceeded consensus expectations, which stood at 580k for starts and 600k for permits. The signs of recovery are only persuasive in the multiples sector, though June's rise in starts was broad based. The latest data looks a little stronger than several recent surveys, particularly a very weak June NAHB homebuilders survey, the dip in which was only partially reversed in July. The data provides comfort in that it suggests housing is not going to be a significant negative in upcoming GDP data, assuming debt default is avoided. However, we will need to see substantially improved data from home sales before housing plays a significant part in the recovery."

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