Trader Talk

Housing Starts Are Leading Market (!)


Been a while since Housing Starts led the tape, but many big names are up 5 to 8 percent this morning. November Housing Starts printed 685,000 starts, the highest point since April 2010 (remember the home buyer tax credit?), well above expectations of about 625,000...Building Permits of 681,000 were also well above expectations.

Yes, most of the increase was due to a 25 percent increase in multifamily construction; single family construction was up 2.3 percent. But don't pooh-pooh that: multifamily construction has been rising due to demand for rental units, and the total number of units under construction has been steadily increasing; multifamily starts are up about 50 percent compared to 2010.

Multifamily construction has been underbuilt for more than a decade in favor of single family. That is now reversing. But there is still positive household formation: just because families are choosing to go into rental rather than ownership does not mean the data is not helpful to the economy.

Why is apartment construction strong? 1) job losses and declines in income have created high rates of foreclosure, forcing some families into rentals, and 2) barriers to ownership are high due to credit restrictions.

That is an important component of construction spending, which is a component of GDP. Morgan Stanley, for example, this morning upped its Q4 GDP estimate to 3.6 percent from 3.5 percent.

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