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Building Permits Fall In November As Skilled Labor Becomes An Issue

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Building permits

Building permits and housing starts data are released jointly by the Census Bureau and the Department of Housing and Urban Development. Analysts use the information to anticipate the future production for homebuilders. They also use it to predict the future demand for raw materials and labor costs. The data will affect the forecasts for home-related retailers—like Lowe’s (LOW) and Home Depot (HD).

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Single-family and multi-family permits fall

Permits for single-family residences decreased slightly to 639,000. Multi-family permits decreased to 367,000. Last month, single-family permits totaled 647,000 and multi-family permits totaled 413,000. Permits rose in the Northeast and fell everywhere else.

Implications for homebuilders

Homebuilders like Lennar (LEN), PulteGroup (PHM), D.R. Horton (DHI), and Toll Brothers (TOL) have been reporting near-record gross margins. They’ve been able to increase prices and contain costs.

That phenomenon will likely be short-lived. The builders are beginning to hit limits with skilled labor and land. Skilled labor is becoming a big issue for them. Wages are increasing rapidly for electricians and plumbers. Buyers are beginning to hesitate because of the prices.

If builders raise prices as far as they can, they’ll have to pump out volumes in order to report increasing revenues. While this might not be good for building gross margins, it could be great news for the economy. The housing sector typically leads the recovery, but this time it did not, due to the bursting real estate bubble. However, if we see a wave of building, it will be good news for employment and it may even bring the first-time homebuyer back. This would start a positive economic cycle. It would push gross domestic product (or GDP) growth and employment to normal levels.

Investors who want to invest in the entire homebuilding sector should look at the S&P SPDR Homebuilder ETF (XHB).

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