Deep Dive:Housing Starts Still a positive

10% September housing starts was an encouraging lift after low 2.5% growth inAugust. Starts are up 6% YTD. We are not surprised by continued strengthconsidering the low finance costs for owner occupied homes and the continuedstrategy by wealthy individuals of using rental units to shelter inheritance tax.

Recent data points such as April-September Daito Trust orders up 10.5%, or12% 3MMA detached home orders at Daiwa House and 12% 3MMA spec homeorders at Sekisui House are consistent with strong starts in October. The lack ofany pending increase in consumption tax allows us to say that current rates ofgrowth reflect a more “real” level of demand. If current trends continue, annualstarts should reach around 950k for calendar 2016. Pre GFC, starts ranged 1.2-1.3m, dropping to ~700k after GFC. After growing 6% in 2016, at current GDPgrowth estimates we would expect low-single-digit growth of 2-3% in 2017.