Housing Starts Rose in November 2015
November Housing Starts, Sales, Permits, and Sentiment
Housing starts ticked up
Housing starts rose from 1.06 million to ~1.17 million in November 2015. This was above Wall Street estimates of just over 1.13 million.
We also saw a slight increase in single-family starts, which rose to 768,000 from 714,000. Multifamily starts jumped to 398,000 from 337,000. Multifamily starts tend to be much more volatile than single-family starts.
Regional results
Starts typically vary by geography. The Northeast fell from 142,000 to 130,000, and the West increased from 239,000 to 254,000. The South increased to 507,000 from 615,000, while the Midwest was flat at 174,000. Many participants were worried that the drop in oil would crimp economic activity in the South, which would cause a further drop in housing starts. So far, that isn’t happening—however, builders are worried.
The real estate market in big cities is undoubtedly being influenced by foreign investors who want to diversify their holdings and are encouraged by the strength of the dollar. In addition, 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 is a driver of multifamily construction, in addition to increasing rental prices and lowering vacancies.
Implications for homebuilders
We have just started the earnings season for homebuilders, which you can trade via the S&P SPDR Homebuilder ETF (XHB). Lennar Corporation (LEN) posted decent numbers for its fourth quarter, which ended in November. Lennar reported a big increase in multifamily earnings, and we are seeing builders 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. However, PulteGroup (PHM) announced lower-than-expected earnings.
We’re seeing more appetite at the lower price points, which may mean first-time homebuyers are finally returning to the market. This would be good news for the entire industry. D.R. Horton (DHI) and PulteGroup are aggressively targeting first-time homebuyers with new brands.
In the next part of this series, we’ll analyze the building permits increase in November 2015.
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