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Why a Rebound in March Housing Starts Isn’t Satisfying the Sector

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Apr. 30 2018, Updated 6:10 p.m. ET

Housing starts rebound in March

The volatility in housing starts data remains elevated. Housing starts in March were reported to have risen 1.9%, a rebound from the 7% slump reported in February and a continuation of the 9.7% increase reported in January.

The US Census Bureau and the Department of Housing and Urban Development reported housing starts for March at 1.32 million, a tad higher than the revised February reading of 1.30 million. Single-family housing starts fell 3.7% to 867,000, and multifamily unit authorizations rose from 431,000 authorizations in February to 473,000 in March. Housing market (PKB) starts are generally volatile, and this recent volatility was primarily the result of changes in multifamily housing starts.

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Regional trends in the housing market

The major reason for the increase in housing starts in March was the 16.1% increase of starts in multifamily units. Among the four regions under review, housing starts increased 22.4% in the Midwest region, while the South and West regions reported decreases 0.6% and 1.5%, respectively. The Northwest region reported a 0.8% increase in housing starts. Single-unit starts have continued to decline for a second consecutive month across all regions.

Implications for homebuilders

The decline in single-family starts is a worrying trend, as this segment contributes to double the increase in GDP in an economy compared to multifamily starts. Construction companies Lennar and D.R. Horton (DHI) rebounded from the February slump and posted gains of over 4% in March. 

The SPDR S&P Homebuilders (XHB) ETF, which has holdings in D.R. Horton, PulteGroup, and Lennar, and the DJ US Home Construction ETF (ITB) saw rises of 0.62% and 3.1%, respectively, in March. In the next article, we’ll analyze the building permit data for March.

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