U.S. Housing Stocks Get A Boost From Data

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Includes: XHB
by: Andrew Sachais
Summary

Homebuilder sentiment is rising.

Moreover, housing permits and starts are expanding at an impressive pace.

As the housing market further improves, equities within the sector should similarly rise.

U.S. housing stocks are rising as both sentiment and starts measures signal strength. The housing sector is represented by SPDR S&P Homebuilders (NYSEARCA:XHB).

In June, the NAHB housing sentiment figure came in at 59, above the previous month's reading of 54, while also exceeding estimates for 56. A reading above 50 signals optimism. After trending sideways the past few years, sentiment is finally breaking out to the upside, seen below. While sentiment is on the rise, homebuilders are still aware of the risks that higher lending rates pose.

"The results indicate a growing optimism among builders that housing will continue to strengthen in the months ahead. At the same time, builders remain sensitive to consumers' ability to buy a new home," according to Reuters.

Moreover, building permits are similarly turning higher. In May, the building permits figure came in at an annual pace of 7.26%, above the previous month's reading of 5.15%. After peaking at over 30% in 2012, permits have slowed a more moderate, yet still respectable pace, seen below. Increasing housing activity is likely to be a topic of discussion at this week's Federal Reserve meeting.

"U.S. permits for future home construction surged to a near eight-year high in May, suggesting a building up of momentum in housing and the broader economy after a dismal performance at the start of the year.

Housing's improving fortunes, marked by rising home prices and sales, are likely to be acknowledged by Federal Reserve officials, who started a two-day policy meeting on Tuesday," according to Reuters.

Data provided the Federal Reserve

Finally, housing starts are also strong, but have failed to gain upward momentum in recent months. In May, the housing starts figure came in at an annual pace of 8.38%, below the previous month's reading of 8.57%. Over the last year the pace of housing starts growth has plateaued, seen below.

The housing sector is strengthening as recent data show. Homebuilder sentiment is on the rise, approaching multi-year highs. Moreover, housing permits and starts are trending higher at a steady pace. As the housing market further improves, equities within the sector should move higher as well.

Data provided the Federal Reserve

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