Don't expect an increase in housing starts to affect the market much

The Commerce Department reported housing starts at a annual rate of 1.957 million units last month, an increase of 5% from April. This is better than the expected 1.86 million estimate and comes after three consecutive declines: 5.5% in April, 7.5% in March, 5.9% in February.

Economists were split on the direction of May U.S. housing starts, with many believing builders hadn't fully responded to a weakening in home sales. Yet most increased their expectations for the May number.

No doubt the Federal Reserve is keeping a close eye on this one as housing starts had pointed in prior years to a strong consumer and good prospects for economic growth.

The increase in construction of new homes and apartments was helped by dry weather.  However, analysts do point out that activity in the housing market is still expected to slow down in the next few months due to rising mortgage rates, just as the building permits number indicates.

Building permits in May were worse than expected at 1.932 million units, a drop of 2.1%. Another indicator of slowdown was The National Association of Home Builders confidence index, reported yesterday, which fell to 42 in June, the lowest point in 11 years.

As I indicated in the Before the Bell posts earlier this morning, I still expect markets to be mixed for the next month at the very least.  The housing market data released this morning could create some optimism at first. But all in all, the numbers don't point to much new.  Just as the good news about the narrowing trade deficit did nothing to alleviate investors' fears of further rate hikes and a slowdown in economic growth, this up-tick in housing starts will probably have the same negligible effect.