10/19/2012
By David Urani

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Housing starts for September clocked in at 872k annually adjusted, which was well above the 765k consensus estimate; permits of 894k also beat the 810k consensus. That represents a 15% increase month to month for starts, the biggest jump since last March. Regionally, it was big gains in the South and West, the two biggest regions, which both increased by 20%, that drove the numbers. The Northeast was down 5% and the Midwest was up 7%.

This is an encouraging result that indicates the momentum for housing was able to continue during the month. I will say that headed into fall some seasonal adjustment may have come into play that exaggerated the gains but certainly the results indicate that construction is following through very well.

I do also wonder, to an extent, if the Federal Reserve's mortgage buying program implemented last month had an effect on builders' construction plans.

Existing home sales for September clocked in at 4.75 million annually adjusted. That's down 1.7% from August and in line with the Consensus estimate. The result includes declines of 6.3%, 3.4% and 0.9% in the Northeast, West and Midwest, respectively while the South gained 0.5%.

Not a great result, and certainly not in sync with the ongoing rebound in the housing market. Even though the consensus was already calling for this result I found it a little interesting how muted the reaction has been in the market, with most major homebuilders actually trading modestly higher. It was quite different from the somewhat extreme positive reaction that we saw to housing starts on Wednesday. As I've said before I think the Street has built in quite a bit of expectation into homebuilders, so soft results will tend to clobber the stocks; except for today.

What the Street may be thinking today is existing home sales are being held back by a declining availability of distressed discount sales (which in turn is also raising average prices). Consequentially, it's possible that buyers would turn increasingly towards new homes. Certainly so far new home sales growth has been outperforming existing home sales growth.

Nevertheless, I'm not convinced that one should really be quick to spin this report as a positive considering earnings season so far has seen decelerating demand across all virtually all other industry spectrums.

David Urani
Wall Street Strategies