Monday, April 2nd, 2012

October Housing Starts – Multi Family Boom?

The headline housing data exceeded expectations.  Here are some thoughts on the report:

October housing data: 628k for starts (vs 604k consensus) and 653k for permits (vs 603k consensus). All in, starts were up 29% y/y

The growth was primarily due to ground-breaking in the multi-family (aka apartment) market – starts were up nearly 100% in this market and permits rose 62% from the year ago period. (Contractors are building to relieve a tight apartment supply as foreclosed ex-homeowners shift to the rental market).  These numbers come against very depressed results a year ago. Would not be surprised to see a drop-off in November starts b/c less multi-family projects are started in winter months. While encouraging to see positive growth, the industry is far from healthy.

To underscore this thought: October single family starts were roughly flat with a year ago (430k vs 434k) but permits rose 6% y/y. Not as great as the headline would suggest, but better than going backward.

There are no pure-play multi-family building product producers.  The industry will get a modest bump from stronger multi-family (1/3 of all starts), but a recovery in single-family market would really turn sentiment for the group, in my view

As it stands, we think the group is in the process of turning the corner after an epic historical decline and remains a good bet for the deep value crowd.  It also may be an appealing “place to hide” in a choppy market primarily b/c , seriously, industry activity is so bad it is tough to see how conditions could materially worsen.




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