August Housing Starts Show Improvement
The U.S. Commerce Department today reported that U.S. housing starts rose by 10.5% in August, significantly exceeding market expectations of a minimal 0.7% gain. August’s data reflects the second consecutive month with a housing starts increase. It is also the largest improvement since November of 2009.
Good news was also reported for new building permits, rising 1.8% to an annualized total of 569,000 compared to the expected 560,000 permits.
The new report indicates that the housing market may be beginning to show signs that it is stabilizing. Nevertheless, it does little to change the fact that the activity level still reflects a depressed housing market.
The earlier weakness in the housing market over the summer months may be attributed, at least in part, to the April termination of rebates for first-time home buyer. The low level of housing activity is also a reflection of extremely slow job growth and the lingering high rate of unemployment.
While the temporary effects of the tax credit will certainly continue to fade away over the coming months, the weak job market is almost certain to continue over the near term resulting in depressed housing activity. Consequently, the Fed is expected to maintain very accommodating monetary conditions, preserving the recent 0.00% to 0.25% range well into 2011.
