by Calculated Risk on 4/25/2007 05:13:00 PM

Some people are confused as to why starts are so high (around 1.5 million on a Seasonally Adjusted Annual Rate SAAR) and New Home sales so low (0.85 million SAAR). They ask: why aren't reported inventories surging?

The answer is new homes offered for sale are a subset of starts. Starts also include homes being built by owners and units being built to rent.

Click on graph for larger image.

This graph shows total starts, starts of single unit structures, and new home sales since 1970.

During some periods (early and late-70s, mid'80s) there was a surge of apartments being built (think baby boomers leaving the nest in the '70s). But in all periods, you can't compare starts (either total or one unit structures) directly to new home sales.

Luckily there is more data available from the Census Bureau, but only on a quarterly basis. See this document: New Privately Owned Housing Units Started in the United States, by Intent and Design

In Q4 2006, there were 278K one family units started (actual, not SAAR). Of these, 205K were intended for sale and the remaining units were either intended as rental units or built by an owner (either using a contractor or by themselves).

In addition, in Q4 2006, 34K units in multi-unit buildings were started intended for sale. So the actual number of units started, with intent to sale, were 205K plus 34K equals 239K.

Also from the Census Bureau, there were 216K units sold in Q4 2006. So the inventory of homes for sale should have increased slightly (by about 23K). Now this last calculation doesn't work exactly (the Census Bureau reported inventory decreased by 24K in Q4 2006), but that is probably because of timing issues. Just remember you can't compare Starts to Sales directly.