Homebuilders provided the foundation for a robust
rally Wednesday following the Federal Reserve's announcement that
it would slowly scale back its monthly bond purchases from $85
billion a month to $75 billion starting in January.
IShares U.S. Home Construction (
) outpaced all equity ETFs, jumping 3%.SPDR S&P Homebuilders
) added 2.6%.
Homebuilder ETFs gapped up at the open on news that housing
starts eclipsed consensus forecasts. They drifted lower the rest
of the morning and suddenly spiked again after the Fed news.
Tapering suggests the economy is improving and strong enough
to lift sales, despite rising mortgage rates. "(Interest) rates
are going to go up because the economy is doing better, not
because the Fed is buying fewer bonds," said Paul Edelstein,
economist at IHS Global Insight.
Short covering, in which traders have to buy shares to close
their positions, could have fueled the move, said Jason Schenker,
president of Prestige Economics in Austin, Texas.
Housing starts surged to an annualized monthly pace of 1.09
million in November, up a hefty 23% from 889,000 in October and
14% higher than consensus forecasts of 955,000. They vaulted
nearly 30% year over year to their highest level since February
2008. Single-family home starts and multifamily starts rose 21%
and 27%, respectively.
Housing permits dipped 3% to 1.007 million in November from
1.039 million in October, while rising 8% from the year-ago
period. The rate was nearly 2% higher than Wall Street
expectations of 990,000. Multifamily housing permits fell 11%
while single-family permits rose 2%.
The housing market index -- a gauge of builders' outlook on
single-family home sales and expectations for the next six months
-- improved to 58 from 54. Readings above 50 mean more
homebuilders report good market conditions.
The housing market may not be as strong as the data suggest
because of severe reporting problems, contends John Williams,
founder of ShadowStats.com. He says the problems stem from the
government shutdown in October, coupled with distortions from
Hurricane Sandy in the Northeast last year and unusually cold
weather this year.
2014 Housing Outlook
U.S. home prices will climb 5% in 2014 after gaining 10% this
year, forecasts Bank of America Merrill Lynch. Prices have
climbed 14% from their fourth-quarter 2011 trough. 2013 saw a
rapid increase in home prices owing to record high affordability
at the start of 2013, strong
demand for distressed properties and very low inventory.
Home prices will increase at a slower rate over the next
several years because of the increased difficulty for individual
home buyers to get loans under new qualified mortgage standards
that go into effect Jan. 10. At the same time, household
formation rates have slowed to merely 500,000 this year -- down
42% from 857,000 in 2012.
Housing starts will rise another 20% in 2014 to 1.1 million,
from 915,000 in this year, and return to its historical average
rate of 1.5 million by 2016, BofA Merrill projects. They've
rebounded tremendously from a low of 500,000 in early 2009.