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December 17, 2010
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For Immediate Release
Chicago, IL – December 17, 2010 – Zacks.com Analyst Blog features: D.R. Horton (DHI), Plum Creek Timber (PCL), Berkshire Hathaway (BRK.B), USG (USG) and Bob Evans (BOBE).
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Here are highlights from Thursday’s Analyst Blog:
Housing Starts Up, Permits Down
Housing Starts rose in November to a seasonally adjusted annual rate of 555,000 from 534,000 in September, an increase of 3.9%. The October numbers were revised higher from 519,000, so it is possible to see the increase as 21,000 or 6.9%.
Relative to a year ago, they are down 5.8%. Quite frankly, a year ago was a pretty lousy time for the home builders, as well.
If one looks at only single-family houses, the improvement was somewhat better, rising to 465,000 from 435,000 in October (revised down slightly from 436,000), an increase of 6.9%. The volatile multi-family (condo and co-op) sector plunged 18.2% to an annual rate of just 72,000 (although October was revised much higher to 88,000 from 74,000 units). Year over year, single-family starts are down 5.8% and multi-family starts are down 7.7%.
The total starts number was above consensus expectations of a 545,000 annual rate. While the increase, the upward revisions and the beat of expectations are all good news, at least in terms of short-term economic growth, one should not forget just how depressed things are in the housing market.
Housing Starts peaked in June of 2006 at an annual rate of 2.273 million. We are thus still 75.6% off of the peak levels.
Housing Starts Extremely Important
It is hard to overstate just how important housing starts are to the economy. Yes, at this point, residential investment has declined to the point where it looks almost insignificant -- just 2.22% of GDP in the third quarter, down from over 6.34% of GDP at the height of the housing bubble. However, historically, residential investment -- of which new home construction is the largest part -- has always been the main locomotive in pulling the economy out of recessions.
Even the 2001 recession, which was not caused by a housing downturn, saw a sharp acceleration in housing starts as the recession came to an end. Of course, since starts were jumping but were not starting from a depressed level, that boom later became known as the housing bubble that put us in this mess to begin with. Every other recession was preceded by a sharp fall in housing starts.
This is no coincidence. Each new home built generates a huge amount of economic activity. It put construction workers back to work, and construction workers have been particularly hard hit in the Great Recession, accounting for over 25% of the total jobs lost, even thought they were less than 6% of the total workforce when the recession started.
The effects go much further than just the profitability of D.R. Horton (DHI). Each new home requires a lot of lumber from a firm like Plum Creek Timber (PCL), roofing and insulation materials from Johns Manville, part of Berkshire Hathaway (BRK.B) and wallboard from USG (USG).
This list goes on and on, but it also means jobs for the lumberjacks and factory workers in those plants. They are not even included in that one-out-of-four-jobs-lost figure. As they and the construction workers go back to work, they are also going to have more money to spend, perhaps even go out to eat at Bob Evans (BOBE), thus creating jobs for cooks, waitresses and busboys.
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