Saturday, July 25, 2009

New Home Sales, Single Family Starts and Housing Market Index

by Calculated Risk on 7/25/2009 03:46:00 PM

New Home sales for June are scheduled to be released on Monday morning by the Census Bureau. The consensus forecast is for 350 thousand sales on a Seasonally Adjusted Annual Rate (SAAR) basis, up slightly from the 342 thousand SAAR in May.

Since we already have the NAHB Housing Market Index (HMI) through July and single family housing starts through June - and since both series have increased recently - I thought it might be interesting to compare all three series.

New Home Sales Correlation Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with new home sales and single family housing starts (right scale).

Both the new home sales and single family starts series are very noisy (month-to-month variability is high), so it is hard to use starts to predict sales on a monthly basis. However this does suggest a possible increase in sales over the next few months.

When comparing the HMI to single family starts, r-squared is 0.60.

For HMI to new home sales, r-squared is 0.42.

For single family starts to new home sales, r-squared is 0.85 (pretty high).

It looks like builder optimism (as measured by the HMI) is a little more related to building than selling. (Just a joke).

NOTE: For purposes of determining if starts are above or below sales, you have to use the quarterly data by intent. You can't compare the monthly total single family starts directly to new home sales, because single family starts include several categories not included in sales (like owner built units and high rise condos).