All Eyes on Housing Numbers

By CONRAD DE AENLLE at New York Times

INVESTORS will examine measures of retail and wholesale prices this week for signs of rising inflation, but they may scrutinize a couple of reports on the housing market even more closely.

"Inflation is more important in the big picture," said Bill Cheney, chief economist at John Hancock Financial Services, "but housing is more volatile, and we're in a position now where the housing sector is a bit on the cusp."

"There are signs that it's weakening," he added, "but then we keep getting strong numbers."

The numbers on the calendar this week, both on Tuesday, cover housing starts and building permits for March. A Bloomberg News poll of economists expects declines in both.

Housing starts are estimated to have run at an annual rate of 2.03 million units, down from 2.12 million in February. Permits, an indicator of the market's health further in the future because they relate to activity yet to begin, are projected to slip to an annual rate of 2.10 million units for March, versus 2.179 million the month before.

One culprit in the slowdown is higher mortgage rates, Mr. Cheney said, but it is only a minor one.

"From a long-term perspective, rates aren't that bad," he said. "As long as the overall economy keeps generating jobs and income growth, it will outweigh the negative effect of rising mortgage rates."

Housing prices are a thornier problem. They have soared for years, and he pointed to signs that the advance might be stalling along with building activity. In some metropolitan areas, he noted, home price "appreciation has slowed down, if not ground down to a halt."

The concern among economists and investors is that as housing goes, so goes the economy. "Some say the housing market will crash and take the economy down with it," Mr. Cheney said, "but I think that fear is exaggerated."

Yet it is not completely out of line, he conceded. A slowdown in housing, he said, "will cut into the ability of consumers to take out new equity and spend it on Ferraris." One indication that fewer Testarossas may be leaving the showroom, and that fewer traders will be inclined to buy stocks on Tuesday, would be a decline in housing starts or permits to below an annual rate of two million.

"That would feed into the story that there's a sharp correction and not the mild one that I'm expecting," Mr. Cheney said. "If we start getting numbers starting with a '1,' it will start to get people's attention."

DATA WATCH The forecast for core producer and consumer prices for March is for a sharp increase in yawns. The Bloomberg poll predicts 0.4 percent increases in both measures, which remove food and energy costs; those results would be identical to those in most of the last several months. The producer price report is due on Tuesday and the consumer report on Wednesday.