Housing continues to see signs of growth

Green shoots of activity point to recovery start.

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More signs of a strengthening in housing can be seen in the latest construction industry data released by the Australian Industry Group together with the Housing Industry Association. The Performance of Construction Index (PCI) covers all construction- residential, commercial and engineering, and is showing that house and apartment construction has improved.

Both types have moved into “expansion”, with house building now at 61.5 on its sub-sector index, and apartment building at 57.7.  An index figure above 50 is considered expansion, and below 50 means the industry is in “contraction”.

For houses, this is the first time since February 2013 that it has been in expansion, whereas for apartments it hasn’t been in expansion since May 2010. This is comforting news for builders like Stockland (ASX: SGP), Mirvac Group (ASX: MGR), as well as for building materials suppliers Brickworks (ASX: BKW), James Hardie (ASX: JHX) and CSR (ASX: CSR).

Stockland’s CEO Mark Steinert said last month, “Certainly 2013 was a challenging year for the company but we’re very pleased that we now have projects…coming to market at normal margins and we see them as a key part of our growth strategy moving forward.”

One concern that the PCI report touched on was that the employment sub-index was still showing a contraction- 4.0 points lower than August, at 40.6. This may be explained by employers trying to do more work with their current staff until further construction increases warrant more employees.

Foolish takeaway

These leading indicators to a housing recovery are one way for investors to do their investigations. Apart from reading business reports, there is a wealth of information that you can get free online to gauge where you think the market will be going.

In general, statistics from industry associations and government organisations like the Australian Bureau of Statistics should go hand in hand with your regular newspaper reading and so that you understand the industry your stocks are working within.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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