12/18/2013
By David Urani

Housing starts data from the Census Bureau for November showed a 22% increase month to month and a 30% gain year over year. It was a surprisingly big jump, hitting 1.09 million annually versus the 952k consensus. Often times the volatile multi-family construction readings will skew the data, but in this case single-family starts were up 21%. It was the highest level of starts since November 2007 and suggests rising mortgage rates haven’t sunk construction activity. Permits for new homes, an indicator of future activity, were down 3% but coming off of October’s 5-year high.

With all that said it was an unusually large increase, and may have been subject to volatility from seasonal adjustments and perhaps the October government shutdown which delayed previous months’ data. Therefore I’d like to see this data hold up for a couple of months. Nevertheless I think that you can deduce here that housing activity, at least on the supply side, has held up well despite some turbulence earlier this year.  And it also dovetails with Tuesday’s Housing Market Index which showed homebuilder confidence at an eight-year high.

 The NAHB/Wells Fargo Housing Market Index (HMI), a measure of homebuilder confidence, showed a gain from 54 in November to 58 for December. That matches the August reading, and is the best since 2005. The consensus had called for a modest increase to 55 so this comes as surprisingly good news. It was driven by a big increase in the present conditions component, which was up from 58 to 64, while expectations for the next six months were up from 60 to 62, and traffic was up from 41 to 44.

But as continues to be the case, what homebuilders are reportedly seeing is not being seen by the market, which remains skeptical of the industry. Housing stocks, as measured by the Dow Jones US Home Construction Index (DJUSHB), are still off more than 18% from the May highs. Nevertheless, the NAHB notes the increase in mortgage rates in the back half of this year has not hurt demand.

This data all came with an earnings report on Wednesday from homebuilder Lennar (LEN). The company showed a 42% increase in revenue to $1.92 billion, beating the $1.88 billion consensus, along with earnings of $0.73 which beat expectations by $0.11. And despite some of the caution in the industry during the quarter it posted a 13% increase in orders, leading to a 19% increase in backlog. Prices also remained buoyant, up 18%, as it recorded a 330 basis point increase in gross margin.

David Urani
Wall Street Strategies

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