by Calculated Risk on 5/18/2014 04:27:00 PM

In addition to housing starts for April, the Census Bureau also released the Q1 "Started and Completed by Purpose of Construction" report last week.

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 last week showed there were 103,000 single family starts, built for sale, in Q1 2014, and that was below the 107,000 new homes sold for the same quarter, so inventory decreased slightly in Q1 (Using Not Seasonally Adjusted data for both starts and sales).

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

Click on graph for larger image.

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, and the inventory of under construction and completed new home sales is still very low.  

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.

The second 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.

Single family starts built for sale were down about 4% compared to Q1 2013 (however starts increased sharply in April).

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' has increased significantly, and were up 20% year-over-year in Q1.