May Housing Starts Data: Positive for Homebuilders?

Housing starts report

The April housing starts report was a relief for homebuilders. Their confidence has been struggling. The May report was slightly below the estimate.

Consumer spending is still strong after the May retail sales report. Homebuilders’ confidence was a little low in June due to the threat of Mexico tariffs. However, the outlook for the housing sector still looks intact.

Homebuilders’ stock returns look commendable this year. LGI Homes (LGIH), Lennar(LEN), D.R. Horton (DHI), Pulte Group (PHM), and Home Depot (HD) stocks have gained 62%, 34.0%, 32.2%, and 26.5% YTD (year-to-date) as of June 18, respectively. Toll Brothers (TOL), KB Homes (KBH), and Eagle Materials (EXP) stocks have gained 14.3%, 33.8%, and 45.0% YTD, respectively.

The SPDR S&P Homebuilders ETF (XHB) and the iShares US Home Construction ETF (ITB) have risen 27.1% and 29.1% YTD as of June 18. After the housing starts report, XHB rose 0.46%. In contrast, ITB fell 0.03% on June 18.

The sector has still been facing headwinds like labor shortages, rising material costs, and slowing inventory. As a result, the housing market struggled with sales growth. Amid the trade tensions and concerns about the Fed’s next move, will the housing market sustain the sluggish economic growth? The next housing starts report is scheduled to be released on July 17.