Housing starts increased
In July 2016, housing starts rose from 1,186,000 to 1,211,000. We also saw increases in both single-family and multifamily starts. Single-family starts rose from 766,000 to 770,000. Multifamily starts rose from 400,000 to 433,000.
Housing starts usually vary by geography. Housing starts rose in the US Northeast, Midwest, and South, but they fell in the West. The Northeast saw housing starts jump from 116,000 to 134,000, while starts rose from 171,000 to 175,000 in the Midwest. Housing starts rose from 592,000 to 813,000 in the South and fell from 307,000 to 289,000 in the West.
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 June.