Housing industry indicators
Previously, we saw that housing starts have declined in February. In this part, we’ll look at some more housing industry indicators to help us better understand the trend in the US housing sector.
Analysts also track new home sales as an indicator of housing demand. New home sales increased an impressive 24.8% in February to reach 539,000 units. It’s important to note that this is the highest new home sales figure since February 2008. An increase in new home sales is a positive sign for the housing industry.
To construct any building, a permit has to be obtained from the government authorities. Building permits act as a leading indicator of future activity in residential real estate markets. Higher permits mean that more buildings will be constructed in the future. The US Census Bureau releases building permit data on a monthly basis.
Building permits increased by an impressive 8.7% in February on a year-over-year (or YoY) basis. This is the second straight month where building permits have increased by more than 8%, as the above chart shows.
A positive sign
Building permits have increased for eight consecutive months. This is positive for the US housing sector. Steel companies like Worthington Industries (WOR), ArcelorMittal (MT), and Steel Dynamics (STLD) benefit from strong housing demand. The SPDR S&P Metals and Mining ETF (XME) seeks to build a diversified portfolio of these companies.
Along with the residential real estate sector, investors should also track nonresidential construction activity. Gerdau (GGB) and Commercial Metals Company (CMC) are leading suppliers to this sector. We’ll discuss the indicators in the nonresidential construction industry in our next part.