• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Basic Materials

Housing Construction Still Playing Catch-Up

Five-year high in building permits is good news for the economy.
By MIKE NORMAN Nov 26, 2013 | 06:30 PM EST
Stocks quotes in this article: PHM, DHI

Building permits hit a five year high in October and that's good news for the economy. At 1.03 million units the report beat expectations handily. Most economists had been forecasting a number around 930 thousand so it's nice to see it come in above that.

The Commerce Department postponed release of the Housing Starts and Completion data until Dec. 18, citing data collection issues related to the government shutdown.

In many ways the building permits number is a more important number because it gives an indication of future starts and clearly the signs are looking more upbeat. This is particularly good news because things were starting to look a little shaky at the end of the second quarter and recently there have been heightened concerns inasmuch as mortgage applications remain weak with year-over-year data now on the decline.

Some may want to criticize the building permits number as being mainly due to apartment construction, but my response is, why does that matter? Surely we'd like to see more mortgage lending and home purchases, but people have to live somewhere and after five years of deeply sub-average construction it is important to see work on the nation's housing stock resume. The type of unit (single family homes, apartments) may not really matter as much now since we now seem to be moving away from a long-held public policy goal of universal home ownership. Witness the desire to "wind down" Fannie Mae and Freddie Mac, two structures that supported this goal.

However, even at the five-year high rate, the pace of building permits is still about 30% below where it should be. That's because building permits averaged 1.4 million units over the past 50 years even when the extremely depressed activity of the past four years is included.

In the 1970s, for example, when the U.S. population was only 200 million we averaged nearly 1.6 million units annually. Now the population is more than 100 million higher and we are averaging about 40%  fewer permits (and starts).

The nation needs to turn over its housing stock every so often. On average it's been about every 75 years that the housing stock is completely turned over (rebuilt), however, at the current pace it'll take about 125 years. That's too slow. It suggests that, unless we play catch-up very soon, we are going to be looking at large swaths of America where all you will see is blighted and dilapidated residential real estate. It won't be pretty and sadly, in some places it's already happening.

Despite the slow recovery I believe that housing construction will continue to rise albeit a lot will depend on income and employment where trends have been sluggish. Over the summer the market may have been spooked by the back-up in rates and fears that the Fed may taper its quantitative easing program: however, those fears are likely to subside soon. Indeed, we may already be witnessing that.

Some companies that are likely to benefit from the building recovery will be PulteGroup (PHM) and DR Horton (DHI), which are two of my favorites. Both are financial strong with low price-to-earnings ratios and pay decent dividends.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication the author held no position in the stocks mentioned.

TAGS: Investing | U.S. Equity | Basic Materials

More from Basic Materials

Looking for Higher Highs After a Trex Correction

Bruce Kamich
Jan 22, 2021 12:20 PM EST

Some new accumulation (buying) around the $85 area should set the stage for further gains.

PotlachDeltic's Charts Are Strong Like the Housing Market

Bruce Kamich
Dec 30, 2020 10:45 AM EST

Here's where aggressive traders could look to go long PCH.

Iron Ore Soars, But Will the Pinch Between Supply and Demand Continue?

Maleeha Bengali
Dec 9, 2020 10:00 AM EST

For now, China's infrastructure-led stimulus efforts are helping drive demand for iron ore at a time when production is under pressure.

The Doctor Is In and Probably Isn't Going Away

Ed Ponsi
Dec 8, 2020 9:00 AM EST

Copper has had a nice run, and the likelihood the worst of the pandemic soon could be behind us could mean increased consumption ahead.

Despite Crowded Stores, Lowe's Charts Have Turned Lower

Bruce Kamich
Dec 2, 2020 12:17 PM EST

Avoid the long side of LOW until fresh support develops.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:48 AM EST STEPHEN GUILFOYLE

    Cashing in Some More Chips at Stocks Under $10

    We're trimming a position for a big gain today.
  • 08:34 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 1/27/2021

    The "correction" can be coming sooner than we thou...
  • 09:35 AM EST CHRIS VERSACE

    Another Big Winner for Stocks Under $10

    We're ringing the register Tuesday morning.
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login