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Single-Family Housing Starts Are The Highest In A Year

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Housing starts are a critical predictor of future homebuilder sales

Housing starts are released jointly by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Analysts use the information to anticipate future production by homebuilders. They also use it to predict future demand for raw materials and labor costs. This data will even impact the forecasts for home-related retailers such as Lowe’s and Home Depot.

Housing starts cover the number of privately owned housing units that got underway in a given period. In the case of multi-family dwellings, each individual unit is considered a housing start. If there’s a lot of multi-family construction, then housing starts can become elevated. Investors shouldn’t read too much into the single-family homebuilders.

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Single-family starts fall while multi-family starts increase

Housing starts rose from an upward-revised 1,043,000 to 1,089,000. Multi-family starts were 339,000 in December—a decrease from the 354,000 pace set in November. Single-family starts increased from 679,000 to 728,000. Single-family starts have been much more stable than multi-family starts. And, this is the highest single-family number in a year.

Implications for homebuilders

The homebuilder earnings season is underway. Last quarter, 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 average selling prices and a 10% drop in deliveries. That isn’t happening this time around.

This time, we’re seeing homebuilders unable to raise prices, as evidenced by reports from Lennar (LEN), KB Home (KBH), and Toll Brothers (TOL). That said, we’re seeing more appetite at the lower price points, which may mean the first-time homebuyer is finally returning to the market. This would be good news for the entire industry. D.R. Horton (DHI), which just reported, is targeting the first-time homebuyer with a new brand called the Horton Express.

Investors who want access to the sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB).

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