CHICAGO, April 20, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: D.R. Horton (NYSE: DHI), Plum Creek Timber (NYSE: PCL), Fortune Brands (NYSE: FO), Berkshire Hathaway (BRK.B) and Wal-Mart (NYSE: WMT).
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Here are highlights from Tuesday's Analyst Blog:
Housing Starts, Permits Rise
Housing Starts rose in March to a seasonally adjusted annual rate of 549,000 from 512,000 in February, an increase of 7.2%. Also, the February numbers were revised sharply higher from 479,000, so it is possible to see the increase as 70,000, or 14.6%. Relative to a year ago they are down 13.4%. Quite frankly, a year ago was also a pretty lousy time for homebuilders, so the fall is off a pretty easy comp.
If one looks at only single-family houses, the picture was more or less the same, rising to 422,000 from 392,000 in February, a rise of 7.7%, and down 21.1% from a year ago. February starts were revised up from 375,000, so single-family starts are up 12.5% from where we thought they were last month. The volatile multi-family (Apartment, Condo and Co-op) sector, rose by 14.7% to an annual rate of 102,000 (revised up from 96,000). Year over year, multi-family starts are up 28.6%.
The total starts number was well above consensus expectations of a 520,000 annual rate. However, in any absolute sense, the level of housing starts is just plain awful. It is easy to get a nice percentage gain if you start with a low enough base.
The extremely weak rate of new home construction is a major drag on the economy. It is the principal reason that this recovery feels so anemic. The silver cloud is that fewer starts means that there are fewer houses added to the inventory of houses looking for buyers.
We still face an inventory glut, so a weak homebuilding industry is a key part of the repair process for the housing market. The inventory glut is concentrated in the used home segment of the market, and that is also where the "shadow inventory" resides.
New home inventories are actually near historic lows in absolute terms. Used homes are pretty good substitutes for new homes, so that is a bit of a distinction without a difference. Housing Starts peaked in June of 2006 at an annual rate of 2.273 million. We are thus 75.8% off of the peak levels. Single-family starts are 77.5% below peak levels.
The rebound this month will slow the adjustment process, but also means more economic activity over the next few months. On balance, I have to see the increase in starts as being a good thing, but if New Home Sales do not pick up, the new homes being built will simply make the inventory situation worse.
Housing Starts Vitally 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 2.25% of GDP in the fourth quarter, down from 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, every other recovery saw housing starts lead the way.
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.
That is just the direct construction jobs, but lower building activity also means fewer jobs in the factories that produce building materials, which are counted as manufacturing jobs. Clearly jobs in mortgage finance are also affected by the housing slowdown, but they are not 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, thus creating jobs for cooks, waitresses and busboys. Housing starts are not just about profits and jobs at D.R. Horton (NYSE: DHI) and the other homebuilders, but about jobs and profits at firms as diverse as Plum Creek Timber (NYSE: PCL), Fortune Brands (NYSE: FO) and Berkshire Hathaway (BRK.B). Indirectly, it even helps Wal-Mart (NYSE: WMT).
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