The good news continues. Yesterday the NAHB reported that new housing starts are up sharply, although once again the story was reported in confusing fashion. Housing starts for May were up a whopping 28.5% year-over-year, although the Wall Street Journal headline was that starts dropped 4.8% from April. Housing is highly seasonal, and the best way to analyze trends is to compare current results to the year earlier period. The real story is the recovery continues to gain traction.
On Monday, a report on the survey of builder confidence inched higher, to its best level in five years. And a recent report from online housing company Zillow indicated that prices are now beginning to rise in more markets, and in particular that performance is beginning to vary by neighborhood. The good news is that if you own a home in decent condition in a stable community, the housing market is now in full recovery. This is comparable to the stock market. Not every company prospers in a bull market. Apple is selling iPhones as fast as they can build them, and Android phones are also flying off of the shelves. Meanwhile, Rim, the parent company of Blackberry, and Nokia are losing market share and their stock prices are spiraling downward. Good profits at Whole Foods haven’t stopped American Airlines from filing for bankruptcy, and so on.
The unevenness of the recovery by zip code augers well for the home builders. Many homes are more than thirty years old, in poor condition, and in communities with sagging economies and under-performing schools. With new home construction at depressed levels for five years running, even the current uptick only brings the annual construction rate up to 708,000 units, still more than 50% below long term historical rates of 1.5 – 2.0 million.
The prognosis – expect more good news on housing, and a great environment for home builders for years to come. And this is in a crummy economy. Just imagine what happens if we actually have a real recovery.