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Is the US housing market back to life? Judging from the housing data released yesterday, it sure looks like it! Let’s dig a little deeper to find out.

Housing starts climbed by 1.7% to 546,000 in July, marking its first gain in three months. Yipee! While the headline figure looks impressive, the report also showed that June housing starts were revised downwards from 549,000 to 537,000. Now I have a nasty feeling that there’s so much more dirt beneath the surface…

Other components of the report also reveal several underlying weaknesses in the US housing market. For one thing, single-family housing starts dipped by 4.2% in July and hit its lowest level in more than a year. In fact, single-family housing starts have been dropping at an increasing pace lately. That just means Americans are becoming less and less willing to move out of yo momma’s house!

Aside from that, building permits chalked up a 3.1% drop for the month. Being an indicator of future construction activity, this implies that both mutli-family and single-family housing starts could see further declines in the coming months.
The bad news doesn’t end there because it looks like the worse is yet to come for the housing market. Duhn duhn duhn duhn! According to a monthly survey conducted by the National Association of Home Builders (NAHB), future sales and buyer traffic are anticipated to be weaker in the near future. Its housing market index (HMI) continued to decline in August printing at 13.0 following July’s 14.0 reading and disappointing the 15.0 forecast. Uh oh.

Figures above 50.0 imply that home builders are generally optimistic about the market conditions at the present time and the next six months. But with the index hitting its 17-month low in August and nearing its record low of 8.0 set in January 2009, it’s hard to imagine good investor lovin’ coming the way of the housing market.

For the most part, the softness of the housing market data could be blamed for the advanced purchases prior the expiration of the government’s first-time home buyer tax rebate in April. While this is certainly a major factor, let us not forget that the US job market picture remains bleak, making it difficult for consumers to rationalize big-ticket purchases such as housing. Even with record-low interest rates, who in their right mind would risk taking out mortgages when their job is on the line?

Looking forward, with risk aversion still at high levels, my guess is that the weakness of the US housing market will continue to be dollar-positive. This was evident yesterday, when the dollar managed to post some gains during the US trading session on disappointing housing starts. Ah, let’s see what the following months has to offer us, shall we?