by Calculated Risk on 1/16/2012 05:05:00 PM

Earlier I posted some housing forecasts for 2012. A frequently asked question is how do new home sales compare to single family housing starts (both series are from the Census Bureau). This graph below shows the two series - although they track each other, the two series cannot be directly compared.

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. From the Census Bureau: Comparing New Home Sales and New Residential Construction

Click on graph for larger image.

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. We categorize new residential construction into four intents, or purposes:

Built for sale (or speculatively built): the builder is offering the house and the developed lot for sale as one transaction this includes houses where ownership of the entire property including the land is acquired ("fee simple") as well as houses sold for cooperative or condominium ownership. These are the units measured in the New Residential Sales series.

Contractor-built (or custom-built): the house is built for the landowner by a general contractor, or the land and the house are purchased in separate transactions.

Owner-built: the house is built entirely by the landowner or by the landowner acting as his/her own general contractor.

Built for rent: the house is built with the intent that it be placed on the rental market when it is completed.

However it is possible to compare "Single Family Starts, Built for Sale" to New Home sales on a quarterly basis. The Q3 2011 quarterly report showed that there were 79,000 single family starts, built for sale, in Q3 2011, and that was about the same as the 77,000 new homes sold for the same quarter. This data is Not Seasonally Adjusted (NSA).

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.

This graph provides a quarterly comparison of housing starts and new home sales. In 2005, and most of 2006, starts (blue) were higher than sales (red), and inventories of new homes increased.

Sales and starts have been running at about the same level for the last 2 years. In 2008 and 2009, the home builders started far fewer homes than they sold as they worked off the excess inventory they built up in 2005 and 2006.