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Ara Hovnanian: Why the housing recovery is just starting

Talking Numbers

The CEO of one of America's largest home builders explains why he thinks we’re in the second or third inning of a housing recovery.

Homebuilder confidence may be the highest it’s been since before the housing bubble burst, but investors may have some reason not be as excited just yet.

The US Commerce Department released housing data on Friday and the news was mixed. Housing permits were 943,000, which was up 12.4% compared to the previous year. But, the breakdown of that number tells a more interesting story. Permits for multifamily homes were up 12.6% in July compared to June. That number was 330,000. But, single-family units dropped 1.9% over the same period to 613,000.

Meanwhile, actual housing starts were 896,000, up 5.9% compared to June and up 20.9% compared to last year. Like housing permits, the breakdown says two different types moved in opposite directions. Multifamily units were what drove the numbers up; single family home starts were at 591,000, down 2.2% compared to June’s number while starts for homes with 5-plus units were up 25.5% to 290,000 units.

(Read more: Housing starts up 5.9%; Q2 productivity beats forecasts)

But while that’s the story with the nation’s housing stock, shares in homebuilders have had a rough summer. Since May 20, the Philadelphia Stock Exchange’s Housing Sector Index has dropped 17%. Some homebuilders, like PulteGroup, are down more than 30%.

Looming over the markets is the specter of higher interest rates. Since November, mortgage rates have climbed over 100 basis points to 4.4% on a 30-year fixed mortgage. Part of what’s pushing rates up is that the Federal Reserve Bank’s $85 billion per month bond buying program may soon be tapered.

(Read: Canada's red hot housing market teeters on the brink)

So, what is the CEO of one of the nation’s largest homebuilder thinking right now? We talk numbers with Ara Hovnanian, CEO of Hovnanian Enterprises. Over the past twelve months, the company has sold nearly 7,000 homes. Hovnanian believes we’re in the second or third inning of a housing recovery.

To hear his reasons why he thinks there’s more positive news for homebuilders to come, watch his interview with Talking Numbers above.

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