Housing starts rose
Housing starts rose from 1.12 million to ~1.18 million in February 2016. This was above Wall Street analysts’ estimates of 1.5 million.
We saw increases in both single-family and multifamily starts. Single-family starts rose from 767,000 to 822,000. Multifamily starts rose from 333,000 to 341,000.
Starts usually vary by geography. Starts rose in all of the geographies except the Northeast. It fell from 150,000 to 73,000—a big decrease month-over-month, but actually a year-over-year increase. In the other geographies, the West increased from 245,000 to 309,000. The South rose from 574,000 to 615,000. The Midwest increased from 151,000 to 181,000. Many participants were worried that the drop in oil would crimp economic activity in the South. This could cause another drop in housing starts. So far, that hasn’t happened. However, builders are concerned.
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. In addition, wealthy Chinese investors are taking advantage of the visa program. It promises a free green card to anyone who invests $500,000 and creates ten jobs. This is sending cheap capital to developers. It drives multifamily construction. It also increases rental prices and lowers vacancies.
Implications for homebuilders
We just finished the earnings season for homebuilders. You can trade through the SPDR S&P Homebuilders ETF (XHB). Lennar (LEN) has a November fiscal year. Soon, its report will give us a first read on the spring selling season. We’re seeing builders 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. However, PulteGroup (PHM) announced lower-than-expected earnings.
We’re seeing more appetite at lower price points. This could mean that 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 January 2016.