by Calculated Risk on 9/28/2007 12:00:00 PM

Hopefully this post will clear up some of the confusion regarding various housing statistics and forecasts. Take a look at the recent Goldman Sachs housing forecast - several people have asked if the numbers are consistent - can the excess inventory be worked off with New Home sales falling to 650K and starts "only" falling to 1.1 million units?

Here is a key point: New Home sales come from a subset of housing starts. Housing starts also include owner built units, rental apartments, and other units that would still not be included, if sold, in the New Home sales report.

Click on graph for larger image.

This graph shows total housing starts and new home sales for the last 30 years. Although there are timing problems comparing starts to sales, these are the two most mentioned housing statistics, and this graph clearly illustrates the key point above.

Perhaps it would be helpful to divide starts into two major categories: Starts for homes that will be included in New Home sales, and All Other Starts. Unfortunately the Census Bureau doesn't provide this exact breakdown. But we can estimate "All Other Starts" from the above graph: the median for the last 30 years was 750K, and the minimum was 505K (during the recession of '91).

So, ceteris paribus, if New Home sales fall to 650K, we would expect total starts to fall to 1.4 million units (650K + 750K).

Of course all else isn't equal these days in the housing market - the outlook is especially grim - but perhaps not as grim as some forecasts. I'll post more on this topic this weekend.