Housing Starts, Week of October 19th

TRADEX GLOBAL INTERNAL COMMENTARY

Housing starts surged 15% in September to the highest level in four years.  Beginning home construction jumped last month to an annualized rate of 872k, the fastest pace since July 2008.  This makes it fairly clear that housing is off the bottom and is in the midst of a recovery.  Population growth and household formations have increased, while the excess inventory of quality homes has dwindled.  I think that these numbers and the lack of recent building activity will go a long way to revive employment in the housing sector that has lost 2 million jobs since the end of 2007.  Shares of homebuilders rallied (which is not great for our hedges).  The August number was revised up to 785k (annual rate) from 750k, and over the last 12 months work has begun on 34.8% more new homes, the biggest year-over-year increase since April.  Building permits (a proxy for future construction) also jumped to an 894k annual rate.  This exceeded forecasts, with the number of permits rising by 45% since September 2011, the biggest annual jump since 1983.  No matter how you spin these numbers, housing is rebounding and this should help employment.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Housing starts in the U.S. surged 15 percent in September to the highest level in four years, adding to signs of a revival in the industry at the heart of the financial crisis. Beginning home construction jumped last month to an 872,000 annual rate, the fastest since July 2008 and exceeding all forecasts in a Bloomberg survey of economists, Commerce Department figures showed today in Washington. An increase in building permits may mean the gains will be sustained. “It’s no longer a question of whether the industry is rebounding,” Larry Sorsby, chief financial officer of Red Bank, New Jersey-based Hovnanian Enterprises Inc. (HOV), the best-performing homebuilding stock this year, said in a telephone interview today. “There is clear evidence that we have bounced off the bottom and are in the midst of a recovery.” A pickup in sales stoked by record-low mortgage rates and population growth combined with dwindling supply indicates construction can continue strengthening, contributing more to economic growth. Improving demand may also help revive a part of the job market that’s seen construction employment fall by almost 2 million since the end of 2007. “This is good news for the labor market,” said Anika Khan, a Charlotte, North Carolina-based senior economist at Wells Fargo & Co., the biggest mortgage lender in the U.S. If single-family starts “continue to show this positive momentum, and we expect they will, we’ll likely start to see some construction jobs come back.”

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