New Home Starts and Completions Fall, But not Far Enough

The New Residential Construction figures for February 2008 were released yesterday by the U.S. Census Bureau and the Department of H.U.D.

Single-family housing starts were at a seasonally adjusted annual rate of 707,000 and were down 6.7% from January 2008 and were down 40.5% from February 2007. Single-family housing completions were at a seasonally adjusted annual rate of 903,000 and were down 4.6% from January 2008 and were down 30.6% from February 2007. Here is a chart showing the different components of housing.

This previous post discussed the pressures on home prices that excess inventory exerts.
From the number of houses for sale, it appears that inventories are shrinking. However sales are falling faster, so inventory is still increasing. This next chart compares the amount of houses completed for sale every quarter to the number of new home sales for the previous quarter. New homes are counted when a home goes into contract. Builders try to have contracts lined up before they complete the house. Up through the end of 2005, homes were being sold as fast as the builders could build them. Starting the first quarter of 2006, there were more homes being completed than sold. Since then there have been 244,000 more homes built than have been sold.

In 2007, 74% of the homes completed were intended for sale. The rest were built by owner or for rental use. At a 74% rate, January’s completions equate to 737,780 homes for sale, and February equates to 668,220 homes for sale. Seasonally adjusted sales in January 2008 were at a pace of 588,000 a year. There are still more homes being completed than are being bought.

In 2007, 73% of the homes started were intended for sale. At a 73% rate, January’s starts equate to 553,340 homes for sale, and February equates to 516,110 homes for sale. This is slightly lower than the current sales pace of 588,000 a year. At the current pace of starts and sales, the amount of excess homes will be sold off in the middle of 2011. New home starts look like they will continue to weaken.

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