Sales outpacing starts by historic margin

By Robert Dietz | Eye On Housing

After a sharp decline in the spring, home building has staged a dramatic rebound. In fact, supported by low mortgage rates, an evolving geography of housing preferences, and favorable demographic tailwinds, housing demand has improved so quickly that the current difference between the pace of newly-built single-family home sales and for-sale single-family construction starts has reached a historic level. The fact that sales are outpacing construction starts to this degree indicates additional home building lies ahead.

The following graph shows the benchmark Census measures of home construction, the seasonally adjusted annual rates of single-family starts and single-family home sales. Starts account for the beginning of construction of homes, whether that construction is for a home already under a sales contract, being built for-sale, being built for-rent, or undertaken for a construction contract (a custom build on an owner’s lot). New home sales are signed sales contracts for new builds, whether that home has started or completed construction (new home sales is thus a counterpart to the NAR pending sales index, rather than existing home sales, which account for closed contracts).

The reason that starts outpace sales on the chart below is because, as noted above, starts represents all home builds. Thus, while the measure of new home sales represents only the more narrow for-sale class, housing starts also include custom builds and built-for-rent construction.

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