Even with a decline in new home starts and completions, new home construction activity is still outpacing new home sales potentially leading to inventories increasing again.
The US Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for October 2009 showing a decrease in new home construction activity from September.
The report shows the following:
- Building permits issued for single-family residences in October were at an annual rate of 451,000 which is 0.2 percent below the revised September rate of 452,000 and down 4.0 percent from a year ago.
- The Northeast region did the best this month for the second month in a row with an increase in permits of 2.2 percent from the prior month. The region was down 4.1 percent from the year before. The West region also had growth in building permits for the month of October up 2.1 percent from the month before and up the same percentage from a year before. The Midwest region had the biggest decline in building permits for the second consecutive month being down 1.4 percent from the month before and down 12.2 percent from a year ago. The South followed closely behind down 1.3 percent for the month and 3.1 percent from the year before.
- Housing starts for single-family residences in October were at an annual rate of 476,000 which is 6.8 percent below the revised September rate of 511,000 and 10.9 percent below a year ago.
- All regions saw a decrease in new home starts in October from the month before as well as year ago. The Northeast saw the biggest monthly decline at 9.6 percent, followed by the south with a decline of 7.3 percent, West with a decline of 5.9 percent and the Midwest with a decline of 4.8 percent.
- Single-family homes completed in October were at a rate of 528,000 an increase of 10.7 percent from Septembers adjusted rate of 477,000.
- All regions had an increase in completed single-family homes with the West region showing the largest monthly increase at 16.5 percent, followed by the Northeast region at 13.0 percent, the South at 9.7 percent and the Midwest with an increase of 3.9 percent for the month.
Something to remember is all the numbers above are “seasonally adjusted” annual rates and the year over year comparisons are just comparing the numbers for October 2009 versus October 2008. Another way I like to look at where things stand is to simply look at the year to date data; actual numbers, not seasonally adjusted, compared to last years ytd numbers at this same time. I think this may give a little better comparison so those numbers are below:
- Through October 2009 there have been 368,900 permits issued for new homes compared with 519,400 this time last year for a decline of 29.0 percent (September YTD numbers were down 30.8 percent).
- Through October 2009 there have been 380,900 new homes started compared with 564,600 this time last year for a decline of 32.5 percent (September YTD numbers were down 34.4 percent).
- There have been 421,500 new homes completed through October 2009, compared with 685,700 this time last year for a decline of 38.5 percent (September YTD numbers were down 39.8 percent)
To see permits for new homes and new home starts drop this month I think is good. We had a spike in new homes completed as a result of some of the recent increases in starts and permits but we don’t really need to be increasing the inventory of homes for sale out there just yet. The bad news is new home construction is still out pacing new home sales.
New home sales, through September 2009, was at a seasonally adjusted rate of 402,000 homes. Even with the reduction in permits and starts, permits are still outpacing sales by over 12 percent and new home starts are outpacing sales by over 18 percent. New home completions is even worse, at a rate of 528,000 completions are out pacing sales by 31.3 percent.
Let’s do one of my favorite things and look at the raw numbers and not seasonally-adjusted numbers to compare construction activity to sales:
Through the end of September there have been 293,000 homes sold and there have been 372,500 new homes completed, outpacing sales by 27.1 percent. At the end of September there were 253,000 new homes for sale, a 7.5 month supply based upon the September seasonally adjusted sales rate. October added 49,000 completed new homes to inventory and it is very unlikely (I’ll even say impossible) that we will see that many sales in October so we are going to see inventory increase. Even if I’m optimistic and project that there will be 32,000 new homes sold in October (the same as October 2008) then that will leave us with roughly 270,000 new homes for sale at the end of October, which, if the seasonally adjusted sales rate stays around 402,000 homes, will kick the inventory back up to about 8 months supply which is the wrong direction.
I do realize that once we truly get into a recovery of the housing market we will, at some point, need to see the rate of new home construction increase to meet demand but I don’t think the time is now. I also feel the recovery is going to be VERY gradual when it comes and we are not going to see a big, and rapid spike, in sales necessitating the same in home starts, but instead a slow, gradual increase in sales which will sustain a slow, gradual increase in new home construction.
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