Housing starts increased
In April 2016, housing starts rose from 1.1 million to ~1.2 million, which was above the Wall Street analyst estimate of 1.1 million. We also saw increases in both single-family and multifamily starts. Single-family starts rose from 753,000 to 778,000. Multifamily starts rose from 337,000 to 373,000.
Housing starts usually vary by geography. Starts fell in the US Northeast and West, but they rose everywhere else. The Northeast saw housing starts fall from 145,000 to 134,000 while starts fell from 261,000 to 235,000 in the West. Starts rose from 540,000 to 616,000 in the South and from 153,000 to 187,000 in the Midwest.
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.
Meanwhile, 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 driving multifamily construction. It also increases rental prices and lowers vacancies.
Implications for homebuilders
We’re almost finished with earnings season for homebuilders. You can get exposure to the industry through the SPDR S&P Homebuilders ETF (XHB). Lennar (LEN) and KB Home (KBH) have a November fiscal year, which means they report earlier than the other homebuilders.
We’re seeing homebuilders 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, while PulteGroup (PHM) and D.R. Horton (DHI) are targeting the first-time homebuyer with lower price points.
In the next part of this series, we’ll analyze building permits in April.