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U.S. housing recovery is still on track Add to ...

Judging from the performance of U.S. homebuilding stocks on Wednesday, the latest housing data failed to inspire new optimism that the sector is in the early stages of a rebound. But the market seems to be alone with this line of thinking.

To be sure, the latest stats were a setback. Housing starts in November fell 3.8 per cent over the previous month. Even though economists had been expecting a decline, they were estimating a dip of just 2.5 per cent.

But observers remain convinced that the longer-term trend is what’s important here – and the trend is one of improvement.

James Marple, senior economist at Toronto Dominion Bank, pointed out that mortgage applications have been soaring for refinancings, but not for home purchases. That’s because new home-buyers can still have trouble receiving mortgages – a problem that should fade as home prices rise.

“The housing recovery will only gain strength from here on in as credit availability improves,” Mr. Marple said in a note.

Bill McBride at Calculated Risk also remains upbeat about the housing recovery, partly because it has barely budged so far: Even though housing starts have rebounded 25 per cent in 2012, the 770,000 starts this year will be the fourth lowest number on record, for data going back to 1959. And that compares with an average of 1.5 million starts through 2000.

“Demographics and household formation suggests starts will return to close to that level over the next few years,” he said on his blog. “That means starts will come close to doubling from the 2012 level.”

This, of course, is good news for homebuilders. On Thursday, though, the S&P 500 homebuilders index was weighed down by short-term news, dipping 0.7 per cent on the housing starts setback and fading momentum in the “fiscal cliff” story.

But these stocks have been enjoying a good run over the longer-term. This year, the index has risen 106 per cent, which implies that a lot of optimism has already been factored in to share prices. Now, it seems that investors are playing this recovery month by month.

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