Home Starts, Leading Index Probably Rose: Economy Preview

Home Starts, LeadingIndex Probably Rose:Economy Preview

By Bob Willis

May 17 (Bloomberg) -- Buildersprobably broke ground on more houses in April and a measure of theeconomic outlook rose for the first time in almost a year, adding to signs therecession was abating, economists said before reports this week.

Housing startsincreased 2 percent to an annual rate of 520,000 last month, according to themedian forecast of economists surveyed by Bloomberg News before a CommerceDepartment report on May 19. The index of leading economic indicators probablyclimbed 0.8 percent, figures from the Conference Board may show.

An easing in the housing slump,now in its fourth year, is an essential element of most forecasts for aneconomic recovery later this year. Rising stock prices and improving consumerconfidence are among the components of the leading index that are stokingspeculation the economy will begin to grow again in the next six months.

“Starts reached their troughearlier this year and are going to be on a very slow path to recovery throughthe rest of the year,” said ZachPandl, an economist at Nomura Securities International Inc. in . “It does looklike the recession is coming to an end.”

The leading indicators index, ameasure of the economy’s likely path over the next three to six months, is due fromthe New York-based private research group on May 21.

Commerce’s housing report mayalso show building permits, asign of future construction and another component of the leading index, rose2.7 percent to a 530,000 rate in April from the prior month’s record low.

More Stable

Housing data in recent weeks haveshown signs of stabilization. Existinghome sales, while reaching a decade-low in January, have held within a narrowrange centered on a 4.6 million annual pace over the last five months. Sales ofnew houses,while still depressed, have bounced from a record low reached in January.

Foreclosure-driven declines inprices have contributed to stabilizing the resales market. Distressed saleshave made up as much as 50 percent of existing home purchases in recent months,according to the National Association of Realtors.

The biggest contraction inresidential construction on record has helped builders trim the glut ofproperties on the market even as sales faltered. The number of unsold newhouses dropped in March to the lowest level since 2002, according to Commercefigures.

Less Pessimistic

Builders are becoming lesspessimistic. The National Association of Home Builders/Wells Fargo’s sentimentindex probably rose in May to its highest level in eight months, economistsforecast a report tomorrow may show.

Still, construction firmscontinue to feel the pain of having to drop prices to spur demand. D.R. HortonInc., the largesthomebuilderby market value, on May 5 reported a quarterly loss that exceeded analysts’estimates as orders dropped 45 percent from a year earlier.

“Market conditions in thehomebuilding industry are still challenging, characterized by risingforeclosures, high inventory levels of both new and existing homes, increasing unemployment,tight credit for homebuyers and eroding consumer confidence,” said ChairmanDonald Horton in a statement.

Financing also remains scarce, asurvey of banks by the Federal Reserve showed this month. A larger share oflenders tightened terms on residential mortgages compared with the priorsurvey, the Fed said on May 4. At the same time, about 35 percent of domesticrespondents saw increased demand for prime mortgages, the first gain in atleast two years.

Stocks, Sentiment

Last month’s jump in the leadingindex would be the first since June 2008, and the biggest since November 2005.The 12 percent surge in the Standard & Poor’s 500 index average, and thebiggest increase in consumers’ economic outlook inmore than two years propelled the gauge higher.

The Fed on May 20 will releasethe minutes of its April 29 monetary policy meeting, when it refrained fromincreasing purchases of securities, saying the economy was showing signs ofstability.

The following day, a survey fromthe Fed Bank of may showmanufacturing in eastern ,southernthis month at the slowest rate since September, adding to signs the factoryslump is easing.

Finally, the Labor Department mayreport May 21 that initial jobless claims fellin the week ended May 16 after the shutdown of plants by Chrysler LLCcontributed to a jump in applications the prior week, economists forecast.