CHICAGO, Feb. 17, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: of D.R. Horton (NYSE: DHI), Plum Creek Timber (NYSE: PCL), Berkshire Hathaway (NYSE: BRK.B), USG (NYSE: USG) and Bob Evans (Nasdaq: BOBE).
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Here are highlights from Wednesday's Analyst Blog:
Multi-family Housing Starts Soar
Housing Starts rose in January to a seasonally adjusted annual rate of just 596,000 from 520,000 in December, a rise of 14.6%. The December numbers were revised lower from 529,000, so it is possible to see the increase as 67,000, or 12.7%. Relative to a year ago they are down 2.6%.
Quite frankly, a year ago was also a pretty lousy time for homebuilders, so the increase is off a pretty easy comp. If one looks at only single-family houses, the picture was worse, falling to 413,000 from 417,000 in December a drop of 1.0%, and down 19.2% from a year ago.
The multi-family (Apartment, Condo and Co-op) sector rose a massive 80.0% to an annual rate of 171,000. Year over year, multi-family starts are up 81.9%.
The total starts number was above consensus expectations of a 540,000 annual rate. While that is good news, all of the beat appears to have come from the very volatile multi-family sector of the market, not from sub-divisions.
Still Very Weak
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.
Housing Starts peaked in June of 2006 at an annual rate of 2.273 million. We are thus still 73.8% off of the peak levels. Single-family starts are 77.3% below peak levels.
Important to the Economy
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.
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 (NYSE: DHI). Each new home requires a lot of lumber from a firm like Plum Creek Timber (NYSE: PCL), roofing and insulation materials from Johns Manville, part of Berkshire Hathaway (NYSE: BRK.B) and wallboard from USG (NYSE: USG).
This list goes on and on, but it also means jobs for the lumberjacks and factory workers in those plants. 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 at Bob Evans (Nasdaq: BOBE), thus creating jobs for cooks, waitresses and busboys.
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