Analyzing Housing Starts in October 2017

In October 2017, housing starts rebounded sharply from the slump in September. October housing starts beat the market’s expectations. Homebuilders ramped up their activity to accelerate rebuilding efforts after Hurricane Irma and Hurricane Harvey. The United States Census Bureau and Department of Housing and Urban Development reported housing starts for October at 1.290 million—an increase of 13.7% from an upward revised September reading of 1.135 million. Single-family housing starts for October were reported at 877,000, which was 5.3% above the September reading of 833,000. The highly volatile multi-family starts (apartments) rose 36.8%

The United States Census Bureau said that the housing starts data are too volatile to be observed monthly. It recommends an observation of three months to understand the underlying trend in housing starts.

Housing activity in the south increased in October. It rebounded from the slump in the previous two months. The southern region, in its efforts to rebuild from the hurricanes, had a positive impact of close to 60% on overall housing starts in October. Looking at the year-to-date trends, the western region witnessed an overall improvement of 8% in housing starts, while the northern region’s housing starts fell 5.1%.

Single homes contribute the most towards economic growth. Single homes have witnessed 8.4% growth year-to-date.

The recently concluded earnings season saw housing companies like Lennar (LEN) and KB Home (KBH) report healthy earnings. An improving economy, lower mortgage rates, and lower unemployment are expected to support the housing market. Investors can get exposure to the industry through the SPDR S&P Homebuilders (XHB) ETF. Key companies that represent the industry include Toll Brothers (TOL) and D.R. Horton (DHI).

In the next part of this series, we’ll analyze building permit data from October—a positive sign for the US economy.