The housing starts/permits is almost always the most important monthly housing report, because a house started today affects GDP and construction employment for the next 12 months. Recently, the New Home Sales report has superseded the starts/permits report in importance. This is because new homes sales have dropped to record lows - and the median time to sell a home has climbed to a record high - and if builders cannot sell homes, they will scale back on starts.

Over the period October 2009 through February 2010, new home sales tumbled 23%, while single - family permits increased 14%. This is odd, since these two numbers usually track one another closely. The divergence suggests that builders, anticipating a surge in demand from the second homebuyers' tax credit, took out permits to build "speculatively built" homes. The New Home Sales report for March, which comes out April 23, will tell us if these new homes are selling. If we get another dreary report, builders will scale back, and single-family housing starts could remain flat for several more months.

On another note, up to now the second homebuyers' tax credit, which expires soon (the contract to buy the home must be signed by April 30 and the transaction must close by June 30), is having a minimal effect on sales. True, the Pending Home sales Index jumped 8% in February, and existing home sales in March are likely to increase by a similar percentage. But an increase in FHA insurance premiums may be behind this surge.

In January, FHA announced that it was increasing its mortgage insurance premium from 1.75% to 2.25%. (On a $100,000 loan, the buyer will pay a $2,250 premium rather than $1,750 - up front - although the premium gets rolled into the loan). This premium increase, which went into effect in early April, was behind a recent surge (and tumble) in the Mortgage Bankers' Association's Purchase Index, and may be behind the recent jump in the Pending Home Sales Index.

Bottom Line

• Single-family housing permits - the key number in this report - increased 5.6% in March (highest level since August 2008).
• Multi-family permits, the report's second - most important item, jumped 15.4% from 123,000 to 142,000 units (seasonally adjusted annual rates [SAAR]).
• Overall, permits rose 7.5% to a 685,000 (SAAR; highest reading since October 2008).
• Housing starts increased 1.6% in March to a 626,000 (SAAR; highest reading since November 2008).
• Single-family starts slipped 0.9%; multi-family starts jumped 18.8%.