Building Permits, Housing Starts Signal Mixed Housing Market
Building Permits tracks the change in government issued new building permits from the prior month. Housing starts tracks the change in the number of new residential buildings that began construction during the month. Both signal to the health of the US housing market.
Larger-than-expected increases in housing starts and building permits suggest increased household income and in turn an economic expansion, and visa versa.
According to the US Department of Housing and Urban Development, privately-owned housing units authorized by building permits in April were at a seasonally adjusted annual rate of 715,000, lower than the 730,000 estimate. This is 7.0 percent below the revised March rate of 769,000, but is 23.7 percent above the revised April 2011 estimate of 578,000.
Privately-owned housing starts in April were at a seasonally adjusted annual rate of 717,000, higher than the 685,000 estimate. This is 2.6 percent above the revised March estimate of 699,000 and is 29.9 percent above the revised April 2011 rate of 552,000.
Housing starts and building permits are seen as a leading indicator for the health of the US housing market.
An increase in housing starts and building permits implies a healthy housing market, and because of the multiplier effect, housing has a significant impact on the rest of the economy.
Traders who believe housing starts and building permits are a leading indicator for the economy and US housing market, you might want to consider the following trades:
- Long building companies like PulteGroup (NYSE: PHM) because the more houses being constructed the more demand these building companies will have.
- Long companies like Louisiana-Pacific (NYSE: LPX), who manufacture and distribute products and materials for home construction.
Traders who believe housing starts and building permits are not a leading indicator for the economy and US housing market, you may consider alternative positions:
- Short building companies like KB Home (NYSE: KBH) because investors may be over valuing these numbers, causing shares to be more expensive.
- Long commodities like the Global Timber ETF (NYSE: CUT) if these housing figures are better than expected. The thesis being, even if this data is not a leading indicator, the data shows the need for building materials, and lumber is a key input material.
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