Sunday, May 18, 2008

Single Family Homes: Comparing Starts and Sales

by Bill McBride on 5/18/2008 03:21:00 PM

Note: Don't miss Tanta's take this morning on: Shiller on the Psychology of Foreclosure

It is difficult to compare monthly housing starts directly to sales. The monthly housing starts report from the Census Bureau includes apartments, owner built units and condos that are not included in the New Home sales report. However, every quarter, the Census Bureau releases Starts by Intent, and it is possible to compare "Single Family Starts, Built for Sale" to New Home sales.

Single Family Starts, Sales, Completions Quarterly by Intent Click on graph for larger image.

This graph compares quarterly starts of single family homes built for sale (and completions of single family homes built for sale in red) with New Home sales.

This data is not seasonally adjusted for any series. There are clear seasonal patterns for all series, and completions lag starts by about 6 months.

The period of significant overbuilding in recent years is highlighted. It now appears that starts are running below sales, and completions have fallen to the level of sales. Note: when adjusted for cancellations, completions are probably also below sales, and the inventory of New Homes is finally declining.

Quarterly Housing Starts by IntentThe second graph shows the quarterly starts by intent at an annual rate through Q1 2008. This shows 1) Single Family starts built for sale, 2) Owner built units, 3) Units built for rent, and 4) Condos built for sale.

As of Q1, Single Family starts built for sale, had declined to about 460 thousand on a non seasonally adjusted annual rate (a little over 500 thousand seasonally adjusted). As noted above, this level of starts is below the current level of New Home sales.

Starts for Owner built units has fallen to the lowest level since the severe recession of 1982.

And starts for condos has fallen significantly - just slightly above the average level of the '90s.

Rental units are the lone bright spot, and it was rental units that accounted for the small increase in overall starts for April. This despite the near record rental vacancy rate of 10.1%.

There is still a huge overhang of existing home inventory for sale (especially distressed inventory including short sales and REOs), and until that inventory declines significantly, starts and housing prices will remain under pressure. However this report does provide some minor positive news for starts - especially starts for single unit structures.