Construction Spending Data Supports Homebuilder Investment

Includes: CAA, MDC, PHM
by: Julie Young

Total construction spending, released by the U.S. Census Bureau on Monday, was down 0.6 percent in August. The total construction numbers, however, don't show the underlying improvements made in residential construction spending.

Total residential construction spending improved 0.9 percent and was up 16.1 percent on an annual basis. Non-residential construction spending, which accounts for 67 percent of the total, was down 1.3 percent for the month.

The increase in residential construction spending is consistent with recently released data on new residential home sales and existing-home sales.

New residential sales reported by the Commerce Department were down less than 1 percent in August but have increased 27.7 percent annually. These new homes also saw an average selling price increase of 12.2 percent in August and 13.9 percent annually.

Meanwhile, existing-home sales reported by the National Association of Realtors were up 7.8 percent in August and 9.3 percent annually. Average existing-home selling prices also gained on an annual basis, increasing 7.2 percent.

Given the improved housing market conditions and decreasing mortgage rates, U.S. homebuilders still continue to be a leading investment in the current environment.

Year-to-date through Monday, October 1, the S&P Homebuilders Select Industry Index was up 45.66 percent. Residential homebuilders comprise 14.3 percent of the Index and have been fueling the Index's gains. PulteGroup, Inc. (NYSE:PHM), M.D.C. Holdings, Inc. (NYSE:MDC) and Standard Pacific Corp. (SPF) ranked second, third and fifth in the Index on a year-to-date return basis.

Through Monday, October 1, PulteGroup, Inc. has gained 142.63 percent. M.D.C Holdings, Inc. has returned 119.97 percent. Standard Pacific Corp. has also led the industry group, gaining 105.35 percent year-to-date. Additional Index ranking data can be found in the table below.

Freddie Mac's September 2012 Economic and Housing Market Outlook projects continued strengthening in housing starts and home sales with fourth quarter annual estimates reaching 0.78 million and 5.00 million, respectively. Given the continued improvements, residential construction companies appear to remain profitable market investments.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.