Housing Now a Positive Factor

10/24/2012 5:00 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

The sharp rise in housing starts is an important positive factor for the economy, says MoneyShow's Jim Jubak, and this is giving several related industries a boost that could last.

It’s quite a role reversal, after years of the housing sector being a huge drag on the US economy.

In the last couple of months, it looks like the housing sector is going to be one of the more positive parts of the US economy, so that in September...on October 17, the Census Bureau, which tracks housing starts, announced that for September the annualized rate of housing starts—that’s how it’s measured, they project the month into what would happen over the whole year—hit 872,000 houses. That’s their new starts.

It was way up from where we were in August, and way above where we were expecting that we’d be in September, according to economist projections that the August figure was around 758,000. The thought was that September would be slightly higher at 768,000 or so. So, this is a big, 100,000 higher rate.

If you look at that, you go OK, well, is it believable? If you look at the sort of the step before housing starts—before you start a house you have to get a housing permit—yes it is believable that we’ve had a pretty steady increase in housing permits that hasn’t been reflected in housing starts. So it looks like the September number is really catch-up with that strength in the market.

If you look at that and you say OK, well, if we’re playing catch-up then maybe we’re going to get a drop back in October, it looks like we might. But the drop back in October would still be to around 800,000 or so as an annualized rate—again, higher than August—so we’re looking at a pretty strong part of the housing market.

The stock market loves this. All the homebuilder stocks went up: Pulte (PHM) and Lennar (LEN) and Toll Brothers (TOL) all went up. Companies that sort of deal with this like warehouses that sell lumber or Lumber Liquidators (LL), Home Depot (HD), Lowe's (LOW), all those things went up.

It even went further back in the chain that we had copper stocks, because a lot of copper wiring goes into both houses and appliances that then go into the houses. So copper stocks like Freeport McMoRan (FCX) or Jiangxi Copper (JIXAY) in China were also up on this news.

You get a kind of positive feedback, which is that OK, so this makes you think the economy is going to be stronger. Stock prices go up, and whether we like to admit it or not and whether we own stocks or not, a rising stock market tends to make people feel better about spending money. If they don’t own any stocks, they feel psychologically a little wealthier, at least that’s what the Federal Reserve keeps telling us, and I think it’s actually true.

All this means is that we’re seeing a boost to economic growth, and it might actually turn into a real number that we see third-quarter US GDP getting reported on October 26, some likelihood that because of this we’re going to see a higher-than-expected GDP growth rate.

Is it going to be enough to really make a big difference in unemployment, anything like that, job growth, wages? No, probably not. Again, psychologically, if it comes in higher than expected, that’s good for the economy, it’s good for consumers. And since recessions and recoveries are to some degree very much a psychological phenomenon, people stop spending because they’re afraid to spend.

People start spending again because they feel comfortable; they feel hopeful about things. So these numbers all seem to push us toward rising confidence, rising consumer confidence, and that in of itself is worth a little bit of extra growth for the US economy.

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