|Housing Starts (St. Louis Fed)|
U.S. housing starts (for September) blew past consensus expectations to a near 900,00 units, which is a 4-year high. Though levels are still well below the 1.5 million historic average rate, this report adds to other upbeat news for the sector, and it doesn't look like it's over. Housing permits also climbed to a 4-year high. So it looks like building activity will remain strong over the next few months.
But though the rental market dominates building activity, homes built for purchase are starting to see a comeback. Single family starts bounced by 11% in September. That's good news for sales, since those homes are usually built to purchase. If this is sustainable, it suggests an uptick in the real residential construction component of GDP, which would be the first time in six years.
This is why ITB, the iShares Dow Jones U.S. Home Construction ETF, was setting up to breakout in May and diverged with the overall market (SPY, DIA, QQQ, IYT). XHB, the SPDR S&P Homebuilders ETF, broke above resistance a few months earlier. So housing stocks were already starting to price in this bullish data. But, let's not forget that the market has been manipulated by the Fed's quantitative easing and operation twist programs in size since November 2008. Hence the reason why she said "this is just what the doctor, or rather the Federal Reserve, ordered," at the end of the video. So now what?
Here's a look at ITB from the lows in 2008 and 2009. It is testing the uptrend line and 50 day moving average. I bet it corrects with the overall market, but I'd have to look at the correlations again. Housing seems to be in its own world.