WRAPUP 4-US housing starts hit 1-1/2-year high, permits fall

* New home construction touches 1-1/2-year high

* Building permits tumble to lowest in 6 months

* Producer inflation eases in April
(Adds Obama comments on economy, updates markets)

By Lucia Mutikani

WASHINGTON, May 18 (BestGrowthStock) – U.S. housing starts touched
a 1-1/2-year high in April, but a drop in building permits to a
six-month low implied the housing market recovery may struggle
to gain momentum without more government aid.

Tuesday’s data indicated the U.S. economic recovery was
continuing into the second quarter, but worries persist that
the debt crisis in Europe could stunt growth in the months
ahead as governments there tighten their budgets.

The end of a popular tax credit could also put a damper on
the housing market, amid a deluge of foreclosed properties.

Housing starts rose 5.8 percent to an annual rate of
672,000 units in April, the Commerce Department said. This was
the highest since October 2008, just a month after the collapse
of Lehman Brothers.

The gain last month likely reflected a rush by prospective
homeowners to take advantage of a federal tax credit for home
buyers before the April 30 deadline to sign contracts. They
have to close the purchases by the end of June to qualify for
the credit. Groundbreaking had increased 5 percent in March.

“The increase in demand prompted by the tax credit has
lifted construction, but the expiration of the credit on April
30 has made homebuilders wary about continuing to add new homes
during the summer,” said Ian Shepherdson, chief U.S. economist
at High Frequency Economics in Valhalla, New York.

Financial markets had expected housing starts to rise to
650,000 units last month. Compared with April last year, starts
were up 40.9 percent, the largest increase since March 1994.

Building permits, which give a sense of future home
construction, dropped 11.5 percent to a 606,000-unit pace last
month, the lowest level since October 2009. Markets had
expected a 680,000-unit rate in April.

Separately, prices received by U.S. farms, factories and
refineries slipped 0.1 percent in April after a 0.7 percent
rise in March, the Labor Department said. Markets had expected
producer prices to gain 0.1 percent.

INTEREST RATES SEEN ON HOLD

With the housing market still shaky, inflation subdued and
worries about Europe hanging over markets, analysts are
increasingly coming to the view that the Federal Reserve will
extend its ultra low interest rate policy into next year.

U.S. stocks (Read more about the stock market today. ) tumbled as attention reverted to the sovereign
debt problems in Europe. U.S. government debt prices rallied,
while the dollar hit a fresh four-month high versus the euro.

While the economic recovery that started in the second half
of 2009 is showing signs of strengthening and broadening out
from manufacturing, Wal-Mart Stores Inc (WMT.N: ) said high
unemployment and fragile household finances remain a constraint
to spending.[ID:nN18270576]

President Barack Obama, whose popularity has dropped amid
public unhappiness with the economy, said on Tuesday it will
take time for Americans to feel the resumption of growth.

“We’ve got a long way to go before this recovery is felt in
the lives of all our neighbors and in all the communities that
have lost so much ground in this recession and for years
before,” Obama said during a visit to a steel mill in Ohio.

Hoping to reverse Democratic majorities in both houses of
Congress, Republicans have taken aim at the economic policies
of the Democratic U.S. president and his allies.

Housing starts in April were lifted by a 10.2 percent rise
in groundbreaking for single-family homes to a rate of 593,000
units. This followed a 2.1 percent gain in March.

Starts in the volatile multifamily segment tumbled 18.6
percent to a 79,000-unit annual pace, partially reversing the
prior month’s 24.4 percent surge.

Despite the drop in permits after two straight months of
gains, analysts are cautiously optimistic that home
construction will hold up and believe a combination of low
mortgage rates and an improving labor market will partially
fill the void left by the end of the tax credit.

Permits lead housing starts by one to two months. A
National Association of Home Builders survey on Monday showed
home-builder sentiment rose to its highest level in more than
2-1/2 years in May on the strengthening economic recovery.

“Housing starts should continue to trend higher this year,
meaning residential construction will contribute to economic
growth,” said Sal Guatieri, an economist at BMO Capital Markets
Economics in Toronto.

“However, until the foreclosure wave ebbs and the overhang
of unsold existing homes abates, the recovery in homebuilding
will be subdued.”

Investment in new home construction contracted in the first
quarter after two straight quarters of growth. A flood of
foreclosed properties is hampering the housing sector’s
recovery from a three-year slump.

Last month, building completions increased 19.2 percent to
769,000 units, while the inventory of total houses under
construction fell 2 percent to a record low 482,000 units.

The total number of units authorized but not yet started
dropped 5 percent.
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Housing starts graphic: http://link.reuters.com/wed84k

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Stock Market Advice

(Additional reporting by Pedro Nicolaci da Costa and Caren
Bohan; Editing by Diane Craft)

WRAPUP 4-US housing starts hit 1-1/2-year high, permits fall