Statistical Indicators

NEW HOME STARTS AND PERMITS

Posted on Wednesday, February 16, 2011

check out the clip on CNBC today!
Today’s Release: Covers January 2011
Real news is in multi-family
Permits: 562K. Down 10.4% MOM (from December 2010 @627K). Down 10.7% YOY (from January 2010 @ 629K). SF 421K Down 4.8% MOM (from December 2010 @ 442K). MF January 2011 @ 125K. Expected after last months surge due to rush to get permits before requirements changed in several key states.
Starts: 596K. Up 14.6% MOM (from December 2010 @ 520K). Down 2.6% YOY (from January 2010 @ 612K). SF 413K. Down 1.0% MOM (from December 2010 @ 417K). MF January 2011 @ 171K. Expected after decrease last month due to weather conditions.
Completions: 512K. Down 9.5% MOM (from December 2010 @ 566K). Down 22.7% YOY (from January 2010 @ 662K). SF 428K. Down 7% MOM (from December 2010 @ 460K). MF January 2011 @ 77K
Two Builder Criteria: Price Stability and Inventory.
Home Prices: In much of country expected to be unchanged or go down in 2011 due to Foreclosures, unemployment, tighter mortgage credit, and rising rates. Banks currently own about 25% of homes on the market. Those homes will eventually sell for prices that will drive are home prices down further.
Inventory: 5 or 6 months is normal. Now we have almost double that (9.1 months). Probably won’t eat through that in 2011. Plus estimated 1.5 to 7 million shadow inventory. On top of that, foreclosures are expected to match 2010, and adding another 1 million units. As of December 2010 new home inventory was 190K, a 6.9 month supply.
Other Factors:
Existing Home Sales: 2010 worst year in decade.
New Home Sales. 321K sold in 2010. Down 14.2% from 2009. December 2010 numbers were up MOM (from November 2010) 17.5% (from 280K to 329K). But down YOY (from December 2009) 7.6%. Next release will be 2/24/11.
Credit: Still a challenge for builders.
Appraisals: 33% of builders say they lost a sale because of in 2010.
Unemployment: Takes existing buyers out of market and delays household formation.
Homebuilder Sentiment in February unchanged 4th month in a row. 16 (under 50 is bad). Hasn’t been over 50 since 4/06.
Construction Defects: Reserves. Replacing faulty Chinese drywall in U.S. homes may cost more than $15 billion alone.
Other: benefits from a tax-law change and decreased write downs on land. Less competition since many smaller builders didn’t make it.

Predictions:
Past behavior is best indicator of future behavior: 8 of 12 months in 2010 set record lows for Starts. Hit flat spot mid year. Later half of year was worse than first. New homes sales in 2010 were 310K, down from 374K in 2009. Lowest level since 1963. For all of 2010, starts rose 6.1% over 2009.
Peaked at 1.3 million in 2005.
2010 was 75% below peak at 588K.
Trends take 3 to 6 months with this indicator. Certainly no upward trend.
Pent up demand in household formation (Other hand). Durable sales; furniture are – are up. Home sales should follow eventual employment gains.
Expect 575K starts in 2011. Right direction.
Side Notes:
• Home depot and Lowes hiring 50 to 60K each for Spring busy season - yard stuff. HD increased 2010 revenue outlook and forecasts.
• Cycle: 3 jobs per new home built. $90K taxes. Etc.
• KB Homes targets first time buyers. Cut costs to hit Q4 profit. Cautious about 2011. Lennar predicts slow demand due to unemployment and foreclosures, lots of inventory hampering demand.
• Most analysts predicting improvement were wrong when they did that last year.

BACKGROUND
• Housing industry is about 27% of investment spending and 5% of overall economy.
• US Census Bureau and HUD. Starts and Permits are leading indicators. 3 to 6 months to establish trend. Seasonal adjustments. Only some built for sale (thus numbers may be bigger than home sales numbers). Changes may occur after permit issue but before completion. Townhouses are big part of ‘reclassifications.’
• Use to predict estimates for other consumer based indicators since folks buying homes will buy furniture, garden supplies, home appliances, etc.
• Directly impacted by mortgage rates. Higher rates increase housing costs and reduce number of qualified buyers meaning home sales down and home starts down. Reverse is true of lower rates.
• Housing data can impact bond market. Stronger than expected report is negative, suggest strong growth and inflationary side effects. Weak has opposite effect.
• Housing starts and construction employment usually lead out of recession. Lag is 12 to 18 months with peak correlation with employment at 16 months. RI (residential investment) is usually new home sales and improvement. RI usually picks up as Fed lowers rates. Leads to jobs and household formation. And demand for housing. Cycle.
S&P supercomposite Homebuilding Index. S&P 500 Index.
• While the Standard & Poor's Supercomposite Homebuilding index has more than doubled since its low of Nov. 21, 2008, it is 74 percent below its July 20, 2005, peak.
• The index, including D.R. Horton Inc. and Lennar Corp., has risen 1.9 percent in the past 12 months, trailing the 23 percent gain for the S&P 500 Index. Barclays Capital Inc. analysts cut homebuilders to "neutral" from "positive" on Jan. 6 and a Jan. 10 S&P report cited "continued market concerns."
Pulte Reports "greater frequency of newly reported claims" by people with company-provided warranties against defects. Claims for defects can take time to surface, because typical construction warranties are good for a decade -- which is also the amount of time many states allow for filing lawsuits for alleged defects. That could mean some builders will need to set aside more money for repairs and legal claims in years to come, said Ron Kozlowski, a Hong Kong-based senior actuary at Towers Watson, a consultant to insurers. "Their liabilities are underfunded," he said, not specifying the builders. "They have their heads in the sand." Replacing faulty Chinese drywall in U.S. homes may cost more than $15 billion alone,

Toll Brothers Second Quarterly Profit last week reported its second straight quarterly profit after three years of losses as it recorded a benefit from a tax-law change and decreased writedowns on land. For the fiscal year ended Oct. 31, the company had a loss of $3.37 million and revenue of $1.49 billion, down 76% from 2006 peak sales of $6.12 billion. Toll Brothers shares fell 1.9% to $18.64 at 11:19 a.m. in New York Stock Exchange composite trading today. They have declined 1% this year, compared with a 4.4% drop in the Standard & Poor's Supercomposite Homebuilding Index. The company expects to sell between 2,100 and 2,900 homes in fiscal 2011 at an average price of $540,000 to $565,000. The homebuilder sold 2,642 units in the recently ended fiscal year, down 11% from 2009. Toll Brothers is poised to benefit when the market recovers because many of its smaller competitors have gone out of business, larger public builders don't compete in the luxury market and few companies have land ready for development, Yearley said. Toll added almost 3,000 lots to its inventory in its most recent year, the first increase since 2005.
• Historical Annual Starts
2010 588K. For all of 2010, starts rose 6.1% over 2009. Second lowest in records back to 1959.
2009 554K
2008 905K
2007 1.3 million
2006 1.8 million
2005 2.1 million
2004 1.9 million
2003 1.8 million
2002 1.7 million
LAST RELEASE January 19, 2011 for December 2010:
Overall: Starts declined. Permits gained. Had re-bounded 3.8% in November. (lead by 9.0 drop in S.F following 5.8% gain in Nov) (MF rebounded 17.9% after dropping 5.0% in Nov)
Permits made 16.7% comeback after 1.4% November decline.
PERMITS 635K. Jump may mean trying to get approval before code changes in CA, PA, NY. Up 81% NE, Up 44% W, Up 3.3% MW, Down 7.6% S.
Up 16.7% MOM. (544K 11/10)
Down 6.8% YOY. (681K 12/09)
SF up 5.5% 440K MOM. MF 172K
STARTS 592K Down in 4 of 4 regions lead by MW down 38%. Maybe due to weather – Dec was 7th snowiest in century. 55% of country had snow. 3rd wettest in W. Plus home purchases slumped mod 2010 following tax credit expiring.
Down 4.3% MOM. (553K 11/10). Lowest since 10/09
Down 82.% YOY. (576K 12/09)
SF down 9.0% MOM. 417K (fewest since May 2009). (439K 11/10). MF 102K (first increase in 4 months)
COMPLETIONS 585K
Up 4.1% MOM (562K 11/10)
Down 22.22% YOY (752K 12/09)
SF up 5.5% 463K MOM. MF 111K


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