Housing starts Decreased
In September 2017, US housing starts fell from an upwardly revised August number of 1.183 million to 1.127 million units. This reading was a negative surprise and below the market expectation of 1.180 million units.
Single-family housing starts were reported at 829,000, which was also below the August reading of 869,000. The highly volatile multi-family starts (apartments) fell 5.1%.
Notably, the US Census Bureau has stated that the housing starts data figures are too volatile to be observed monthly and recommends an observation of three months to understand the underlying trend in housing starts.
Regional trends in the housing market
The US South has witnessed a sharp fall in housing starts due to the impact of Hurricanes Harvey and Irma. Single-family starts have fallen 15.3% in the region and showed a total decline of 54,000 starts out of a total of 56,000 starts.
Other US regions witnessed minor positive changes in the previous month, showing continued improvements in the sector in terms of year-over-year growth, which was reported at 6.1%.
Implications for homebuilders
The 3Q17 results of homebuilders have seen a large percent of the construction companies surpassing their earnings estimates. Lower mortgage rates, lower unemployment, and stable economic growth have boosted demand in housing markets. Although interest rates are expected to go up, the process could be slow and might not have an immediate impact on housing markets.
Investors can get an exposure to the homebuilders’ industry through the SPDR S&P Homebuilders (XHB) ETF. Key Companies that represent this industry include Lennar (LEN), KB Home (KBH), Toll Brothers (TOL), and D.R.Horton (DHI).
In the corresponding part of this series (below), we’ll analyze building permits in September.