For the past year, we've been saying that housing will become an important variable in economic growth. The trend in housing starts is proving that's the case.

Starts were exceptionally strong in March, moving ahead 7.3% to an annualized rate of 1.036 million units. Looking year over year, total starts are up 46.7%.The multi-family component has been exceptionally strong, driven by increased investor demand. That said, the single-family component has also posted a robust gain, rising 28.7% year over year.

Housing construction is now running at a rate unseen since 2008.

Looking ahead, considerable upside still exists. Over the past two years, annual housing starts have increased to one million from 600,000. Despite the strong surge in starts, they remain 50% below the historical norm of 1.5 million annualized unit. In other words, housing is far from running the course.

In the interim, though, there are a few concerns. Permits declined 3.9% in March, falling to an annual rate of 902,000 units. The decline points to a slow down in building activity over the next month or two.

Builder sentiment also suggests something might be amiss in the short term. The National Home Builders Association sentiment index dropped two points this month to 42. This is the second-consecutive monthly drop, which pushes sentiment down to a six-month low.

Builders are citing a litany of issues for their souring outlook: low inventory (which more starts should rectify), falling buyer traffic, rising construction costs, and still restrictive lending (particularly construction lending).

We can't quarrel with the builders' complaints, but on a positive note we could be seeing a loosening of the purse strings on the lending front.

We see mortgage lending becoming more inclusive. We particularly like what is occurring in purchase lending. This past week, the Mortgage Bankers Association reported that the mortgage purchase index increased 4%, posting its highest activity level since May 2010. What's more, conventional purchase activity is up to levels unseen since October 2009.

More lenders are also showing a willingness to extend credit on lower down payments. It's especially encouraging to see more lenders willing to extend conventional mortgages with 5% to 10% down payments.

The positive trend in conventional loans tells us that regulatory concerns are receding and that lenders are becoming less risk adverse. This is good news, because we've been saying for some time now that we need a more diverse, more accommodating lending market. In other words, we need a more normalized market. This appears to be the direction the mortgage market is taking.

 Courtesy of Jessica Regan.

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