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Wednesday, December 18, 2013

Quarterly Housing Starts by Intent compared to New Home Sales

by Calculated Risk on 12/18/2013 07:02:00 PM

In addition to housing starts for November, the Census Bureau also released the Q3 "Started and Completed by Purpose of Construction" report this morning.

It is important to remember that we can't directly compare single family housing starts to new home sales. For starts of single family structures, the Census Bureau includes owner built units and units built for rent that are not included in the new home sales report. For an explanation, see from the Census Bureau: Comparing New Home Sales and New Residential Construction

We are often asked why the numbers of new single-family housing units started and completed each month are larger than the number of new homes sold. This is because all new single-family houses are measured as part of the New Residential Construction series (starts and completions), but only those that are built for sale are included in the New Residential Sales series.
However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis.

The quarterly report released this morning showed there were 120,000 single family starts, built for sale, in Q3 2013, and that was above the 90,000 new homes sold for the same quarter, so inventory increased in Q3 (Using Not Seasonally Adjusted data for both starts and sales).

This was the biggest gap between sales and starts since 2006, but one quarter isn't very worrisome.

This graph shows the NSA quarterly intent for four start categories since 1975: single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale.

New Home Sales and Housing Starts by Intent Click on graph for larger image.

Single family starts built for sale were up about 17% compared to Q3 2012. This is still very low, but the highest for Q3 since 2007.

Owner built starts were up 8% year-over-year. And condos built for sale are just above the record low.

The 'units built for rent' had increased significantly, but the year-over-year growth has slowed to about 15%.

The second graph shows quarterly single family starts, built for sale and new home sales (NSA).

New Home Sales and Housing Starts In 2005, and most of 2006, starts were higher than sales, and inventories of new homes increased. The difference on this graph is pretty small, but the builders were starting about 30,000 more homes per quarter than they were selling (speculative building), and the inventory of new homes soared to record levels. Inventory of under construction and completed new home sales peaked at 477,000 in Q3 2006.

In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory that they had built up in 2005 and 2006.

Now it looks like builders are generally starting about the same number of homes that they are selling (although they started significantly more than they sold in Q3), and the inventory of under construction and completed new home sales is still very low.   This gap will only be concerning if it persists.

Note: new home sales are reported when contracts are signed, so it is appropriate to compare sales to starts (as opposed to completions). This is not perfect because of the handling of cancellations, but it does suggest the builders are keeping inventories under control, and also suggests that the year-over-year increase in housing starts is directly related to an increase in demand and not renewed speculative building.