The Zacks Analyst Blog Highlights: D.R. Horton, Plum Creek Timber, Berkshire Hathaway, Wal-Mart and Darden Restaurants
CHICAGO, Dec. 21, 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), Berkshire Hathaway (NYSE: BRK.B), Wal-Mart (NYSE: WMT) and Darden Restaurants (NYSE: DRI).
Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Tuesday's Analyst Blog:
Multi-Family Housing Starts Soaring
We got some good news on the housing front this morning. Housing Starts rose in November to a seasonally adjusted annual rate of 685,000 from 627,000 in October, a rise of 9.3%. The number was much better than the expected level of 627,000. The October numbers were revised slightly lower from 628,000. Relative to a year ago they are up 24.2%.
The question is whether the higher starts are being absorbed by the market, or are simply adding to inventory. This should be answered on December 23th when we get the New Home Sales figures. If they confirm the move in starts, consider it an early Christmas present for the economy.
However, almost all of the strength was in the very volatile multi-family sector (five or more unit apartments and condos). If one looks at only single-family houses, the gains were much more modest. Single-family starts rose to 447,000 from 437,000 in October, a rise of 2.3%, and up 1.5% from a year ago. The volatile multi-family sector jumped by 32.2% on the month to an annual rate of 230,000. Year over year, multi-family starts are up a very robust 180.5% (no, that it not a typo, but it is from a low base).
Better, But Still Awful
The level of housing starts is still awful. 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. Still, this is the highest rate of overall starts since April 2010, and that was only due to the homebuilder tax credit. And this time around there is no artificial stimulus. If you exclude that anomaly, this is the highest level of starts since October 2008, in the middle of the meltdown.
To put it perspective, at the peak of the housing bubble, starts were running at 2.273 million (1/06), so we are still down by 69.9%. For single-family starts it is the highest level since June 2010, and we are down 75.3% from the peak.
We still face an inventory glut, so a weak homebuilding industry is a key part of the repair process for the housing market. However, several years of low starts has started to put a dent in the backlog. After all, the population does continue to grow.
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. The absolute level of used homes on the market is not particularly high, especially if just measured by those that are currently listed. Inventories are, however, still high relative to the current sales rate.
Used homes are pretty good substitutes for new homes, but only if they are in the same market. An empty used house in North Carolina is a very poor substitute for a new house in North Dakota.
The level of housing starts has been very depressed for three years now, and the overall inventory situation (new and used) is still bad relative to the sales rates. That means downward pressure on prices. We will find out about the level of Used Home Sales (and very importantly, inventories) tomorrow.
The Economic "Locomotive" Remains Derailed
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 6.34% of GDP at the height of the housing bubble. Over the long haul, residential investment averages about 4.4% of GDP. 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. They account for over 31.8% of the total private sector jobs decline since the start of the downturn. That is despite being 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. They are not included in that "almost one out of three jobs lost" figure. If they and the construction workers could go back to work, they would have more money to spend, thus creating jobs elsewhere.
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) and Berkshire Hathaway (NYSE: BRK.B). Indirectly, Wal-Mart (NYSE: WMT), Darden Restaurants (NYSE: DRI) and every other firm that depends on middle and working class discretionary income.
Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
SOURCE Zacks Investment Research, Inc.
More by this Source
Browse our custom packages or build your own to meet your unique communications needs.
Learn about PR Newswire services
Request more information about PR Newswire products and services or call us at (888) 776-0942.