Housing starts impress

Bottom forming?

Housing starts increased 3.6% in May to an annual rate of 582,000, beating the consensus forecasts that called for a small rise. Starts were led by a robust 14.4% increase in single-family starts, but the volatile multi-family group fell almost 26%, giving back some of May's out-sized gain.

Building permits, which provide a glimpse at future activity, increased a healthy 8.7% to an annualized rate of 563,000.

Housing starts have been relatively flat since the beginning of the year, suggesting a bottom may be forming in a group that has been heavily battered by the recession. Moreover, the Housing Market Index released yesterday continues to show that sentiment among home builders is coming off extremely depressed levels.

Some on the Street are suggesting that housing starts must continue to fall in order to soak up excess inventory. Typically in manufacturing, production must be slashed in order to get inventories back to more reasonable levels.

But in this case, falling starts is likely be a signal that traffic through new model homes continues to decline. The increase in starts, in my view, is a sign that potential buyers are slowly coming off the sidelines. The caveat, however, becomes the contingency attached to the contract that allows the buyer to back out of the purchase if he/she cannot sell the existing home.

Separately, a look at GE and Bank of America's earnings is available at Examiner.com as well as an interesting look at the impact of an ETF on natural gas prices.