Preview - Fresh Multi-Year Lows Expected for Permits, Housing Starts

Tuesday marks the busiest economic calendar day for this traditionally less volatile pre-Thanksgiving US holiday week. In addition to detailed minutes of the last FOMC decision, where a less dovish than previously expected statement has likely signalled the Fed on hold for the rest of 2007, a fresh set of numbers assessing housing activity in the month of October will be released. Markets are anticipating 1.17 million in housing starts and 1.20 million building permits, both below September's 1.19 million and 1.26 million figures respectively.

The forward looking nature of these numbers make them particularly crucial with investors looking for a bottom in the housing downturn. Housing starts measure the number of residential units on which construction has commenced, while building permits are required in some parts of the country to break ground, thereby generally leading the starts as the two measures trend together (attached chart).

At this juncture, there is little doubt left that the overall economy in 2007 has been marred by a severe housing recession. However, there are some encouraging signs suggesting that the pace of deterioration in housing activity may be slowing. Housing Market Index released today suggested a pause to a freefall, with this month's figure on par with that of last month. Additionally, pending home sales data for September released just last week unexpectedly ticked higher. Moreover, in spite of a drop in existing home sales for that month, new home sales saw an improvement from August. And whereas any rise in this traditionally volatile figure has recently been accompanied by an average price decrease, September's rebound was also accompanied by a jump in selling price.

Taking these factors into consideration, a rebound in both permits and starts would not be entirely surprising. In turn, this could diminish the likelihood of a December 11th Fed rate cut that has by now been fully priced in by Fed funds futures in spite of last week's hawkish Fed speak, taking the dollar higher.

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