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Analyzing June Housing Starts, Sales, and Permits

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Analyzing June Housing Starts, Sales, and Permits PART 1 OF 4

How the Hot Rental Market Contributed to Housing Starts

Housing starts increased

In June 2016, housing starts rose from 1.1 million to ~1.2 million. We also saw increases in both single-family and multifamily starts. Single-family starts rose from 745,000 to 778,000. Multifamily starts rose from 386,000 to 392,000.

How the Hot Rental Market Contributed to Housing Starts

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Regional results

Housing starts usually vary by geography. Starts rose in the US Northeast and West, but they fell everywhere else. The Northeast saw housing starts jump from 80,000 to 117,000 while starts rose from 270,000 to 317,000 in the West. Starts fell from 591,000 to 571,000 in the South and from 194,000 to 184,000 in the Midwest.

The real estate market in big cities is undoubtedly being influenced by foreign investors who want to diversify their holdings. They’re encouraged by the strength of the dollar.

Meanwhile, wealthy Chinese investors are taking advantage of the visa program, which promises a free green card to anyone who invests $500,000 and creates ten jobs. This is sending cheap capital to developers and driving multifamily construction. It also increases rental prices and lowers vacancies.

Implications for homebuilders

We’re almost finished with the earnings season for homebuilders. You can get exposure to the industry through the SPDR S&P Homebuilders ETF (XHB). Lennar (LEN) and KB Home (KBH) have a November fiscal year, which means they report earlier than the other homebuilders.

We’re seeing homebuilders allocate more resources to multifamily construction to take advantage of the hot rental market. Toll Brothers (TOL) has been aggressively pushing into luxury urban apartments in big cities, while PulteGroup (PHM) and D.R. Horton (DHI) are targeting the first-time homebuyer with lower price points.

In the next part of this series, we’ll analyze building permits in June.

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