Housing Starts Rebound Nicely in April
Housing Sector Rebounds Nicely in April: Has It Turned the Corner?
After a dismal couple of months, housing starts rebound
Housing starts rose from an upward-revised 944,000 to 1,135,000 in April. This was well in excess of Wall Street estimates of just over 1 million. We saw strong growth in single-family starts, which rose to 733,000 from 628,000. Multi-family starts rose to 389,000 from 295,000.
A harsh winter depressed starts in February and March. But as spring approached, housing starts were one of the few indicators that actually had a meaningful recovery. Most other indicators, such as the ISM (Institute for Supply Management) manufacturing indicators, still show weakness. Nowhere was the rebound more pronounced than the Northeast, where starts nearly doubled. All other geographies showed increases.
It’s looking like the Northeast is finally beginning to turn around as it addresses the glut of foreclosed homes. Ever since the housing market bottomed out, the West Coast and large cosmopolitan cities have performed well. The Midwest and Northeast have lagged.
The big-city real estate market is undoubtedly being influenced by foreign investors who want to diversify their holdings and like the strength of the dollar.
Implications for homebuilders
The homebuilder earnings season is more or less over, with only Toll Brothers (TOL) remaining. Last quarter, builders generally increased their top lines by raising prices, not by selling more units. Homebuilders continue to fear being caught with inventory if the economy turns down. Given the already tight inventory out there, which I’ll cover later in this series, builders should be stepping in to fill the void.
That said, we’re seeing more appetite at the lower price points, which may mean the first-time homebuyer is finally returning to the market. This would be good news for the entire industry. D.R. Horton (DHI), which just reported, is targeting the first-time homebuyer with a new brand called the Horton Express. PulteGroup (PHM) is also aggressively targeting the first-time homebuyer. Geographically, the West Coast remains strong, which is good news for builders like Lennar (LEN).
Investors who want access to the sector as a whole should look at the SPDR S&P Homebuilders ETF (XHB).
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