Surge in Home Building Raises Hope for US Economic Upturn in Second Quarter, Triggers Bond Sales

After a long winter, strong dollar, and sagging oil prices led to a slower start to 2015 than many in the United States had hoped for, things appear to be taking a positive turn. A report by the Commerce Department indicates construction of new homes was higher in April than it had been since 2007. In fact, the jump was the biggest surge in home building in almost 24 years.

After a long winter, strong dollar, and sagging oil prices led to a slower start to 2015 than many in the United States had hoped for, things appear to be taking a positive turn. A report by the Commerce Department indicates construction of new homes was higher in April than it had been since 2007. In fact, the jump was the biggest surge in home building in almost 24 years.

Home building increased 20.2 percent in April over March, according to the report. The surge offered a bit of hope to the housing market, which has been slower to recover than other sectors of the US economy. The cause of the recession was, in large part, when a bubble in the housing market burst. This has left many Americans wary about real estate investing or new construction.

Despite the rosy news of many media outlets, many economists remain cautious in their interpretation of the uptick in home building for April. They see the data as an indication of a housing market normalizing after a slow start to the year rather than actually breaking new ground. This cautious view results from the observation that much construction could not take place during the snowy and prolonged winter in many northern states.

Housing data tends to be very volatile and subject to the whims of weather and labor supplies. Over the last few years, the housing market has followed the overall trend of the economy, albeit at a somewhat slower pace, tracking an overall upward trend interrupted by occasional variations in the market. Thus, to find such explosive growth has led some economists to caution that perspective is required. Many believe this to be nothing more than a red herring.

Nevertheless, investors who began selling bonds upon learning of the strong housing report greeted the news eagerly. Many investors had turned to bonds after the collapse of the real estate market despite smaller and, in some cases, negative yields. The positive outlook triggered a massive sell-off as investors navigate the uncertain waters ahead of the release of the Fed’s most recent minutes on Wednesday. Investors want to see what the Fed makes of the mixed reports of slower than expected overall growth in the first quarter followed by a surprisingly large surge in home building in April, and whether there may be hints about a possible increase in the prime interest rate.