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Housing Starts Gain Momentum

Zacks Equity Research

As per the latest data published by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau, housing production across the U.S. rose 22.7% in the month of November, the highest increase in nearly six years.

Both single family and multifamily starts reached a five-year high as mortgage rates continued to remain affordable and pent up demand provided the necessary impetus to the housing market. This implies that home buyers, who have been waiting on the sidelines, now believe that the economic scenario is suitable for implementing their home buying decision.

In Nov 2013, housing starts for single family homes rose 20.8% while multi-family construction rose 26%. The combined starts grew highest with 41.7% in the Midwest, followed by 38.5% in the South and 8.8% in the West. However, the Northeast region witnessed a decline of 29.4% as far as combined housing starts were concerned.

Meanwhile, building permit, which indicates future homebuilding activity, declined 3.1% to 1.007 million in November. This is the second month in which new permit issuance crossed the million mark.

Despite headwinds like rising mortgage rates, the government shutdown and rising cost of building materials and labor, the housing market has been steady for a while now and 2014 is expected to witness a solid increase in housing starts and home sales.    

Rising interest rates notwithstanding, some companies like Lennar Corporation (LEN) and Toll Brothers, Inc. (TOL) beat the Zacks Consensus Estimate on both earnings and revenues for the fourth quarter of fiscal 2013 on the back of strong volume and prices.

However, other companies PulteGroup, Inc. (PHM) and KB Home (KBH) has been witnessing weak orders as the sharp increase in interest rates led to increasing cancellation rates and lower orders for many homebuilders.

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