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What To Make Of The Strong Housing Data?

Goldman weighs in with its daily research report:

The housing data this morning were much stronger than expected, and give at least a glimmer of hope that a stabilization in residential construction activity is approaching. Though we fairly heavily discount the 22% increase in starts as most came from a bounce in the volatile multifamily sector, we place more weight on the 11% rebound in single family permits. In recessions since 1960, with one exception during the 1974 recession, an increase in single-family permits of over 5% has always marked the bottom in permits. 

A few key caveats, though:

A swing in the weather—from colder than normal in January to warmer than normal in February—likely helped to boost both single family permits and starts. Many economic activities are affected by the weather, but construction is particularly vulnerable. ... Another reason for skepticism is that these improvements show up in the first print of data, and the improvement could yet be revised away. ... Finally, there is a strong tendency for month-to-month mean reversion in economic data, and after the very large declines of the last several months this rebound could be just that.

And, even if it the construction numbers are real, it's not good news for home prices:

Building more houses stretches out the ongoing adjustment in the housing market by putting more supply on the market. The homeowner vacancy rate—our favorite measure of excess supply—already stands at a record level and downward price momentum is well entrenched. ... We continue to expect price declines of another 15-20% from yearend 2008.

Which makes me think we'll eventually see some backsliding on the construction front. How sustainable is new construction if home prices are still falling dramatically?

--Noam Scheiber