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Monday, December 15, 2008

Housing Starts vs. New Home Sales

by Calculated Risk on 12/15/2008 01:42:00 PM

The question has come up again about comparing housing starts and new home sales.

As I've noted before, it is incorrect to directly compare monthly housing starts 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 on a quarterly basis. The most recent report shows there were 102,000 single family starts, built for sale, in Q3 2008 and this is less than the 118,000 new home sales for the same period. This suggests homebuilders are selling more homes than they are starting – but not by much.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions), although this isn’t perfect because homebuilders have recently been stuck with “unintentional spec homes” because of the high cancellation rates.

Housing Starts Click on graph for larger image in new window.

This graph provides a quarterly comparison of housing starts and new home sales. In 2005, and most of 2006, starts were higher than sales, and inventories of new homes rose sharply. For the last several quarters, starts have been below sales – and new home inventories have been falling - but it continues to be a race to the bottom between starts and sales!