WASHINGTON -- The strong rebound in home building in April that was reported yesterday renewed analysts' expectations of moderate growth in the residential building sector this year.
"With the return of more seasonal weather, the housing market bounced back and will continue to improve," said Mark Obrinsky, senior economist of the Federal National Mortgage Association in Washington, D.C.
"I expect another four to six months of gradual improvement," said Irwin Kellner, chief economist of the Chemical Banking Corp. The Commerce Department reported that housing starts advanced 6.7% in April to a seasonally adjusted annual rate of 1.213 million units after a revised 3.6% drop in March, which was previously reported as a 4.6% decline. Most economists discounted the March drop because of abnormally bad weather.
The April gain was the largest since August, when starts jumped 11.1%, the department said.
The Federal Deposit Insurance Corp. also reported yesterday that a quarterly survey of senior bank regulators showed that the real estate market in most regions of the country improved in the first three months of this year.
In addition. the agency reported that 60% of the 448 respondents said the residential real estate market was improving, while only 10% said conditions were deteriorating.
Although generally optimistic, analysts cautioned that it is impossible to determine how much of April's gain in housing starts was merely a hold-over from March. "The rise is significant, but most of it is a rebound from a blizzard-depressed March." Kellner said.
Analysts expect housing starts to improve modestly in the coming months because they expect mortgage rates to remain low and housing affordability to remain high, while the economy continues to grow.
Fannie Mae's Obrinsky forecast that monthly housing starts will climb into the 1.3 million to 1.35 million range, at a seasonally adjusted annual rate, by the end of the year and peak at around 1.4 million early next year. "It's difficult to predict these things, starts may peak before the end of this year," he said.
Obrinsky said he expects housing starts to peak because he expects mortgage rates to eventually start back upward and economic growth as a whole to slow.
Veronika White, an economist with First Fidelity Bancorp in Philadelphia, expects housing starts to increase to as high as 1.35 million in the next several months.
"There is fundamental strength in the residential real estate market," White said. "It will contribute to growth in the economy in the second quarter and the rest of this year." White forecast that housing starts this year will post at least a 10% year-over-year gain.
Issuance of housing permits, a slightly more forward looking indicator than starts, gained 5.8% in April to a seasonally adjusted annual rate of 1.094 million units, the Commerce Department reported. This followed a revised 9.4% decline in March.
The April increase in permits was the largest monthly gain since December 1991, when permits advanced 7.8%, according to the department.