Low mortgage rates in the U.S. seem not to have done much to help turn around the dismal outlook for home builders, although investors will be looking for reassurance that at least the freefall has ended.
What are the expectations?
Housing starts in March scheduled for release today are forecast at an annual rate of 540,000, which is down from 583,000 in February, but above the nadir of 477,000 starts in January, according to a survey of economists by Bloomberg. That was the lowest rate since the U.S. Commerce Department began keeping records on starts in 1959.
"The expected drop should leave housing starts down 40 per cent annualized in the first quarter following the [fourth quarter's]record 68-per-cent dive," said Sal Guatieri, a senior economist with BMO Nesbitt Burns Inc.
Despite February's bounce, which reflected growth in the volatile multiple-unit building sector, a full recovery is a long way off. The average monthly annual rate of construction since early 2006 was 1,620,000 starts.
"In the months ahead, we expect new residential construction to remain very soft as the drag from the worsening domestic economy, tighter lending conditions and the massive inventory of unsold homes continue to weigh heavily on new residential building activity," said Millan Mulraine, an economics strategist with TD Securities.
Still, there are reasons for optimism such as the 29.1-per-cent drop in the S&P/Case-Shiller home price index from its July, 2006, peak, according to National Bank Financial. The plunge in house prices along with low mortgage rates (30-year mortgages are at about 4.7 per cent) have resulted in house prices reaching record levels of affordability. "Our confidence that U.S. home prices will stabilize in 2009 is quite high," said Pierre Lapointe, market strategist with National Bank.
How Will the market react?
Investors have already signed up for the home building recovery. The S&P 500 home building index has climbed 56 per cent since March 9. The index includes Centex Corp., DR Horton Inc., KB Home, Lennar Corp. and Pulte Homes Inc.
A week ago, Pulte agreed to acquire Centex in a $1.3-billion (U.S.) share-exchange offer. Yesterday, Credit Suisse Group said that while more industry mergers are unlikely, the most logical takeover candidates are Ryland Group Inc. MDC Holdings Inc. and Toll Brothers Inc.