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Housing starts are a critical predictor of future homebuilder sales
Housing starts are released jointly by the Census Bureau and the Department of Housing and Urban Development. Analysts use the information to anticipate future production for homebuilders, future demand for raw materials, and labor costs. This data will even affect the forecasts for home-related retailers, like Lowe’s and Home Depot.
Housing starts cover the number of privately owned housing units that started in a given period. For multi-family units, each individual unit is considered a housing start. If there’s a lot of multi-family construction happening, then housing starts can become elevated, and investors must take care not to read too much into the builders of single-family homes.
Both single-family and multi-family starts increase
Housing starts rose from 947,000 to 1,072,000. Multi-family starts were 413,000 in April—an increase from the 289,000 pace in March. Single-family starts increased from 644,000 to 649,000. Single-family starts have been much more stable than multi-family starts and have shown a steady rise.
Starts rebound in all four geographic areas
Starts rebounded in the northeast (from 108,000 to 139,000), the midwest (from 152,000 to 216,000), the south (479,000 to 486,000), and the west (from 208,000 to 231,000).
Implications for homebuilders
Homebuilder earnings season is largely over, with only luxury builder Toll Brothers (TOL) remaining. The builders generally increased their top lines by raising prices, not by selling more units. If anything, a typical report would be a 12% increase in ASPs (average selling prices) and a 10% drop in deliveries. Most builders, like Lennar (LEN), Pulte (PHM), D.R. Horton (DHI), and KB Home (KBH), noted traffic was beginning to decline as buyers experienced sticker shock, both with housing prices and interest rates
Generally, the industry is waiting for the return of the first-time homebuyer. As the economy improves, this buyer represents a tremendous amount of pent-up demand that will drive homebuilder earnings for years to come. Investors who want to invest in the sector as a whole should look at the S&P SPDR Homebuilder ETF (XHB).
© 2013 Market Realist, Inc.