by Calculated Risk on 3/18/2008 11:20:00 AM

It appears from the Census Bureau's Housing Starts report released this morning that the home builders are finally starting fewer homes than they are selling. If correct, the inventory of new homes for sale will start to decline.

A couple key points:
1) if sales fall further, then obviously starts will have to fall further too.
2) The huge overhang of existing home inventory, especially distressed sales, will pressure new home sales for some time.

It is difficult to compare starts directly to sales. Starts includes apartments, owner built units and condos that are not included in the new home sales report. However, every quarter, the Census Bureau releases Starts by Intent, and it is possible to compare "Single Family Starts, Built for Sale" to New Home sales.

Click on graph for larger image.

This graph shows the quarterly starts by intent (through Q4 2007). This shows 1) Single Family starts built for sale, 2) Owner built units, 3) Units built for rent, and 4) Condos built for sale.

As of Q4, Single Family starts built for sale, had declined to about 500 thousand on a non seasonally adjusted annual rate.


The second graph show starts of single family units, built for sale, on a quarterly basis (now in green) vs. new home sales (monthly). Based on the housing starts report released this morning, it appears that Single Family starts, built for sale, have fallen below 500 thousand (annual rate) in Q1 2008.

New home sales have fallen just below 600 thousand (SAAR) in February 2008. This suggests that new home inventory is currently declining at about a 100 thousand per year rate (25+ thousand unit decline in Q1).