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Real Estate Market Commentary - June 2015
by Peter L. Zachary, MAI, MRICS

The New York Times had an article on the front of the Business Day section on April 30, 2015 entitled: RISE IN HOMEBUILDING SUGGESTS ECONOMY IS REGAINING MOMENTUM. The article stated, "Home building across the nation accelerated in April, far exceeding expectations and suggesting that the economy was getting back on track after overall growth grounded to a halt during the first quarter of the year."

Home construction last month rose to 20.2 percent over March to a seasonally adjusted annual rate of 1.135 million, the highest number since 2007 and the biggest percentage jump in almost 24 years, the Commerce Department said on Tuesday.

The sunny report wiped out a particularly dismal showing in March and offered a measure of optimism for a housing market that has been slow to recover since the recession.

But most economists were cautious in their reading of the month's data, seeing it as a sign that the housing market was simply returning to a more normal state after the cold and snowy start of the year that kept many builders from breaking new ground.

“It's a hell of a rebound in housing, there is no denying it, said Steven Ricchiuto, chief economist at Mizuho Securities. But “you have to keep it in perspective.” he added. “It brings us back to about a million units, which is where it should be,” he said.

Housing data is always volatile, subject to weather and labor supplies. But numbers from the past year echo the trend of the overall economy, which has maintained a slow upward trajectory, interrupted by relative brief hiccups.

"And I emphasize the word slow," said Joshua Shapiro, chief economist at MFR, Inc. "I don’t think G.D.P. numbers will be in great shakes."

Some analysts, however, were more upbeat about what the housing market may porten about the about the broader economic outlook.

"This report demolished the idea that the economy – outside the oil sector – suffered some sort of real seizure in the first quarter," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note to clients. “It didn't: it was just battered badly by a winter nearly as grim as last year”.

Mr. Shepherdson predicted that new housing construction would continue to rise in coming months, though not as rapidly, and that investment in housing would contribute to economic activity during the second quarter, helping to bring the economy out of its winter stall.

The Commerce Department, in the first of three estimates, reported last month that the American economy grew a mere 0.2 percent annual rate during the first three months of the year. But trade and other data released since then suggest the economy may actually have shrunk over the winter.

Given the current economic climate, April's positive housing numbers ere not expected to change the Fed's thinking on when to raise interest rates. Most analysts now do not expect the Fed to act until September at the earliest.

“The Fed will look as normalization rather than the beginning of a trend that suggests a housing bubble,” said Blerina Urici, United States economist at Barclays. “We've seen very strong changes in many regions but we have to think what was the basis we started from. It was very weak in February and now is returning to normal.”

Tuesday's report showed single family housing starts in April were at a rate of 733,000, which is 16.7 percent above the revised march figure. Starts for apartments and condominiums rose 389,000.

Permits for new housing in April-considered a predictor of construction in months to come – were at a seasonally adjusted annual rate of 1,143,000, an overall increase of 10.1 percent over March.

Housing data was strong across many regions of the country but especially in the Northeast, where the winter storms were concentrated.

In the South however, growth was not quite as strong as some economists had expected.”That is important to note because it indicates that the winter did not mask or limit a near-term acceleration of starts in the South,” David Nice, an economist at Misirow Financial, said in a note to clients.

The South, he said, makes up about half of the single family housing starts.

“In order to see any substantial acceleration in starts in the months to come, Mr. Nice said, “we’ll need to see further strengthening in the south.

More next month. Read previous Real Estate & Housing Market News.

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