Housing Starts.May2011Housing Starts rose 3.5 percent to a 560,000 unit pace in May, which was well above expectations. Gains were broad based with single family increasing 3.7 percent and multifamily rising 2.9 percent.

While the increase is encouraging, starts remain at extremely depressed levels and any recovery will be long and arduous. Single-family starts, in particular, are still very much “dead in the water” and will likely not show any meaningful increase until the amount of distressed transactions moderats and the oversupply of existing homes is cleared.

In fact, the National Association of Realtors reported that 37 percent of all closings in April were distressed. With foreclosures and short sales still accounting for a large share of total transactions, home prices will remain under pressure, which gives builders little incentive to ramp up building activity…

Housing permits were also hopeful, showing a gain of 8.7 percent in May. Much of the gain inpermits was due to a 23.2 percent increase in multifamily permits…

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Source: U.S. Department of Commerce, National Association of Realtors, Wells Fargo Securities