The prolonged weakness in the housing industry has extended up to February 2011. Housing starts fell 22.5% year over year to a seasonally-adjusted annual rate of 479,000 units in February, in contrary to an expectation of an improvement to 580,000 units.
The drop in housing starts during the month was the highest since March 1984, driven by a 46% year-over-year decline in multi-family home construction starts along with a 12% fall in single-family starts. The construction of single-family and multi-family home starts decreased to 375,000 units and 104,000 units, respectively.
The country’s major homebuilders including D.R. Horton (DHI), PulteGroup (PHM), Meritage Homes Corporation (MTH), Toll Brothers (TOL) and Lennar Corp. (LEN) have been struggling with poor demand, which affects their financial performance.
A sloppy housing industry, despite modest recovery in the rest of the economy, comes on the back of a weak and unstable labor market. According to the U.S. labor department, the unemployment rate in the country decreased to 8.9% in February from 9% in January for the third consecutive month. However, employment rate has not been able to regain stability neither has it reduced the job insecurity completely, thereby restraining buyers from investing in homes.
Another crucial factor is inflation. The cost of food increased 3.9%, the maximum since November 1974, while energy prices rose 3.3% led by a 15% jump in home heating oil. Growing demand from the emerging economies of Asia and Latin America and disturbances in the oil-rich Middle East are the main factors behind the soaring prices.
As a result, new building permits, a measure of future construction, fell by 8.2% year over year to 517,000 units in February, the lowest since May 2009. A decline in building permits of 28% in the Northeast and 14% in the West led to the overall decline in new building permits.
D R HORTON INC (DHI): Free Stock Analysis Report
LENNAR CORP -A (LEN): Free Stock Analysis Report
MERITAGE HOMES (MTH): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis Report
TOLL BROTHERS (TOL): Free Stock Analysis Report
Zacks Investment Research
