Housing Starts Increased in September to Just over 1.2 Million



Housing starts ticked up

Housing starts rose from a downward-revised ~1.13 million to ~1.21 million in September 2015. This was above Wall Street estimates of just over 1.14 million. We also saw a slight increase in single-family starts, which rose to 740,000 from 738,000. Multifamily starts jumped to 454,000 from 388,000. This is the highest reading in multifamily starts this year. Multifamily starts tend to be much more volatile than single-family starts.

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Regional results

The Northeast and the West had big increases in starts. The Northeast rose from 111,000 to 137,000, and the West increased from 248,000 to 311,000. The South increased to 621,000 from 617,000, while the Midwest dropped to 137,000 from 156,000. Many participants were worried that the drop in oil would crimp economic activity in the South, which would cause a further drop in housing starts. So far, that isn’t happening. Both the West and the South hit records for the year.

The real estate market in big cities is undoubtedly being influenced by foreign investors who want to diversify their holdings and are encouraged by the strength of the dollar. In addition, 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 is a driver of multifamily construction, in addition to increasing rental prices and lowering vacancies.

Implications for homebuilders

We have just started earnings season for homebuilders, which you can trade via the S&P SPDR Homebuilder ETF (XHB). Lennar Corporation (LEN) posted decent numbers for its third quarter. Note that Lennar and KB Home have November fiscal years, which means they report about a month earlier than everyone else. Most builders are at least beginning to build out multifamily construction to take advantage of the hot rental market. Toll Brothers (TOL) has been aggressively pushing into luxury urban apartments in big cities. However, PulteGroup (PHM) announced lower-than-expected earnings.

We’re seeing more appetite at the lower price points, which may mean first-time homebuyers are finally returning to the market. This would be good news for the entire industry. D.R. Horton (DHI) and PulteGroup are aggressively targeting first-time homebuyers with new brands.

In the next part of this series, we’ll analyze the building permits increase in August 2015.


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