Housing starts up 28.5% versus a year ago. The recovery in home building is clearly underway

Implications: The recovery in home building is clearly underway. Although housing starts fell 4.8% in May, all the decline was due to multi-family starts, which are very volatile from month to month, but still up substantially from a year ago (see chart to right). Single-family starts increased 3.2 percent in May and are up 26.2 percent from a year ago. In addition, the apparent decline in May was in part due to last month's starts getting revised up to a 744,000 annual rate, the best number since October 2008. Looking deeper into the report, the total number of homes under construction (started, but not yet finished) increased for the ninth straight month, the first time this has happened since 2003-2004. Permits to build homes boomed in May, coming in at a 780,000 annual rate, the highest since September 2008. Permits are now up 25% from a year ago. Single-family permits rose 4% in May and are at the highest levels since early 2010, signaling continued gains in home building in the coming year. It looks like the second quarter of 2012 will be the fifth straight quarter where home building boosts real GDP. Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year (probably by 2016), which means the recovery in home building is still very young. For more on the housing market, please see our research report (link). In other recent housing news, the NAHB index, a measure of homebuilder confidence, increased to 29 in June, the highest level in five years.

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Posted on Tuesday, June 19, 2012 @ 9:52 AM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.