U.S. Housing Market: I Added To Homebuilding Stocks

| About: SPDR Homebuilders (XHB)

Summary

Housing starts are 23% higher than the same month in 2015.

Building permits growth slows a bit but supports higher home building stocks.

I added to my CalAtlantic position because I wanted companies that build houses instead of companies that are just related to the homebuilding index. .

The housing numbers for the month of October came in pretty strong. Let me start by showing you a picture that got the attention of traders very quickly after the release. It shows the month-on-month percent change of housing starts.

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Month-on-month growth is at the highest levels since 1983. At this point I am going to spoil the fun. This number is useless. It doesn't say anything important. The same number in 1983 happened in the midst of a recession. Every recession has numbers like these because it shows that numbers are more volatile. I'm not implying that we are in a recession, I am just saying that month-on-month numbers are not valid. Ignore them.

The good news is that year-on-year growth of housing starts is also very strong. Current numbers are more than 23% above last year's numbers. Overall, these numbers are rather volatile. However, if these numbers hold, we could see some serious gains amongst homebuilder stocks (SPDR S&P Homebuilders ETF XHB) as you can see below.

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One must know that housing starts count every single 'project'. Every apartment counts as a new start. Therefore, I always look at building permits. Building permits are often ignored by traders but I can't say enough how important this indicator is.

Building permit growth declined a bit. October growth is at 4.6% after growing 8.5% in September.

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Even slower building permit growth means that homebuilding stocks have a lot of upside potential. Homebuilding stocks are contracting since 2015 on a year-on-year basis.

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I like the latest housing numbers. Housing starts are very strong on a year-on-year basis which supports homebuilding stocks. Building permits are growing too but at a slower pace. I bought some more homebuilding stocks because I believe that these numbers will push stocks higher. Especially the companies that actually build companies like CalAtlantic CAA.

Many thanks for reading my article. Please leave a comment below if you have questions or remarks.

Disclosure: I am/we are long CAA.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.