* The forecast is for a drop of about 2.2 percent in U.S. housing starts to a seasonally adjusted annual rate of 580,000 units in June from 593,000 units the previous month. Forecasts from 70 economists ranged from 530,000 to 650,000 units.
* The forecast is for a drop of about 0.7 percent in U.S. building permits to a seasonally adjusted annual rate of 570,000 units in June from 574,000 units the previous month. Forecasts from 49 economists ranged from 520,000 units to 610,000 units.
FACTORS TO WATCH
Housing starts data for June will likely show a continued decline after reaching a five-month low the previous month, extending a payback that has been in effect since the expiration of popular home buyer tax credits. While the tax credits front-loaded home sales, the report will offer a glimpse into how much may have been siphoned from future sales.
The recent downturn in residential construction employment and the weaker trend for mortgage purchase applications, as well as the gap between housing starts and building permits in May, all point to another poor reading for this leading indicator.
To take advantage of the tax credits, buyers had to sign purchase contracts by April 30. Contracts originally had to close by June 30, but that was extended another three months.
Home builders, meanwhile, have grown more pessimistic, data on Monday showed. A key gauge of home builder sentiment, the National Association of Home Builders/Wells Fargo Housing Market Index, fell more than expected in July, reaching a 15-month low.
New building permits, which give a sense of future home construction, and are seen falling marginally in June after reaching the lowest level in a year the previous month.
The data tracks the start of construction of buildings intended primarily for residential use. The start is defined as the beginning of excavation of a building’s foundation.
Housing starts are subject to substantial volatility. Most economists believe it is useful to examine trends in construction activity for single-family homes and multifamily
units separately because they can deviate significantly. Single-family home building is larger and less volatile than multifamily construction.
More insight into the state of the housing market will emerge on Thursday when the National Association of Realtors releases June U.S. existing home sales data.
A key gauge of home prices, the Federal Housing Finance Agency index, will also be released on Thursday, The FHFA index tracks the purchase price of homes backed by mortgages owned or guaranteed by Fannie Mae and Freddie Mac.
The Mortgage Bankers Association, in its latest weekly survey, showed demand for loans to purchase a home, a tentative early indicator of home sales, fell to a 13-year low. Refinancing demand also dropped. The MBA will release its next survey on Wednesday.
Freddie Mac on Thursday will release its latest weekly survey on U.S. mortgage rates, which last week showed 30-year fixed-rate loans holding at record lows.
Financial markets have already factored in a tepid recovery for the U.S. housing market. Housing starts play a significant role in the U.S. economy because purchases of household furnishings and appliances quickly follow.
Much weaker-than-expected housing starts data could send Treasury prices higher and stocks lower, as it could portend a weaker economic recovery that many have come to expect.
Significantly stronger-than-expected data could cause the opposite reaction.
Improvement in the housing market bodes well for the U.S. economy, as it points to better demand in the sector where the first signs of the latest recession took root.
(Reporting by Julie Haviv; Editing by Dan Grebler) Keywords: USA ECONOMY/HOUSING PREVIEW
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