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Investing Specialists

Is the Interim Bottom In for Housing?

U.S. homebuilding starts are falling with the temperature, but they should thaw in spring, writes Morningstar's Bob Johnson.

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It was another week of soft economic data, with the market shrugging off the results. The S&P 500 was down a measly 0.2% for the week, just missing its shot at a third consecutive week of increases. Both other developed markets and emerging markets were generally up more than 0.6% for the week. The U.S. 10-year Treasury bond was unchanged for the week at 2.74%. Housing data was expected to be soft, but still missed consensus estimates by a lot for builder sentiment, housing starts, and existing-home sales. The Consumer Price Index increase also came in less than expected, also indicative of a less-than-robust economy.

Still, the news wasn't all bad. The flash report from Markit on the manufacturing sector made a new interim high, though this has not been a great predictor recently. Weekly shopping center sales growth strung together its second week of 2% year-over-year growth after spending almost the entire month of January with sub-2% growth, which is highly unusual. And while the housing headline data was terrible, there were also some nice revisions to prior months' data. Permits data seemed to suggest a rebound in housing starts was in the offing, even before the expected weather-related bounce. Fundamentals, such as household formation and permitted land for new construction, also suggest that the worst may be behind the housing economy. (That is, if mortgage rates don't spike.)

Robert Johnson, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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