The Commerce Department just announced that warmer weather in March contributed to a slight uptick in housing starts or groundbreaking, an increase of 0.8 percent to a seasonally adjusted annual rate of 1.518 million, the highest level so far this year.

However, housing starts are still down 23 percent from March 2006, permits are still down 26 percent, and completions are down 0.7 percent to a seasonally adjusted annual rate of 1.63 million, the lowest number of completions since August 2003, but let's keep in mind that 2003 was a record-setting year for both new and existing home sales.

These figures suggest a modest improvement in working through inventories and burgeoning confidence from homebuyers. While the improvements are modest, it's a step in the right direction for those looking for some positive signs that housing is stabilizing.

The Midwest reported its biggest gain in 16 years, with starts up 44 percent. Other regions reported slight falls. Approximately 1.2 million homes were under construction in March, down about 16 percent from March 2006.

Single-family homes saw a nice pop in March with starts up two percent to a seasonally adjusted annual rate of 1.22 million, and permits for single-family homes also rose 1.4 percent to a seasonally adjusted annual rate of 1.11 million.

Consumer prices also rose in March by 0.6 percent at the retail level, well below analysts' expectations. While that's the biggest jump since last April, core prices which exclude volatile food and energy prices increased only 0.1 percent.

Overall inflation, as measured by the Consumer Price Index to include food and energy prices was up slightly to 2.8 percent through the twelve months ending in March.

Although consumers continued to spend, helped by an early-arriving Easter holiday, The University of Michigan Consumer Sentiment survey has shown a gradual decline in outlook from January when the survey readings were at 96.9. Consumer Sentiment fell to 88.4 in March and the preliminary value for April was 85.3, indicating that consumers are watching inflation and they are expecting conditions to decline.

That could be a reflection of gas prices which are currently near record highs. The U.S. Energy Department reported Tuesday that the average gallon of regular unleaded gasoline is up seven cents from last week and is now selling for $2.88. That doesn't sound so bad, but consider that gas was up over 71 cents per gallon over the last 11 weeks.

It's not gas but problems in the subprime mortgage market that's causing builders to worry. The index declined to 33 in April, the lowest level since December of 2006. When builders view sales conditions as good, the index goes to 50 or over.  

"The tightening of mortgage lending standards in connection with the subprime crisis has shaken the confidence of both consumers and builders, as reflected in this report," said NAHB Chief Economist David Seiders. "Indeed, the unfolding effects of this crisis have compelled NAHB to trim our forecasts of home sales and housing production for both 2007 and 2008," he said. "While we still expect to see some improvements in housing market activity beginning later this year, the downside risks and uncertainties surrounding that forecast are considerable." 

Builders reported that builders' sales, expectations, and traffic all declined in April. The index gauging current single-family home sales fell three points to 33, while the index gauging sales expectations for the next six months declined six points to 44 and the index gauging traffic of prospective buyers declined a single point, to 27.

On the surface, the outlook is not grim, but neither it is optimistic. If inflation rises, the Federal Reserve may see fit to raise short-term interest rates, the rates banks use to borrow money. If rates are higher, they in turn pass along higher interest rates to consumers, which could slow credit and spending. In other words, things may get more expensive in the short term, like housing and mortgage interest rates.

The question is how much consumers are willing to go along with higher prices. If they balk, housing will stall again.

Published: April 19, 2007

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Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68. Order Now Review - Honors In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.       Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans. Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR "The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors Coverage from WSMV, Nashville - 8-14-2007 That Interview Guy - Get Inside The Head Of Today's Generation 2007 AE Institute Session - To purchase 2006 AE Institute Session - Parts 1 2 3 4 5 6 7 8 9 HouseValues Mastermind call - Parts 1 2 Blanche's fireside chat with Jeremy Conaway, HAR - Click here. For more articles by Blanche, click here.