Sales Outpacing Starts by a Historic Margin

Among this year’s most read stories on the National Association of Home Builders Eye on Housing blog was an October post, showing that the gap between sales and construction was the largest on record. After a decline during the spring, NAHB chief economist Robert Dietz noted that home building began staging a dramatic rebound helped by low mortgage interest rates, a growing preference for living in the suburbs, and favorable demographics.

These data are consistent with Census estimates and NAHB surveys that indicate builders are selling homes that have not begun construction in greater numbers. Indeed, the count of such home sales is up 69% compared to a year ago, an incredible jump. To place the current data into context, I smoothed the data using 6-month moving averages. While this dilutes somewhat the scale of the current gap, it shows three relevant periods over the last two decades where sales and for-sale starts disconnected.

Because builders do not want to contract home sales that they will not be able to deliver effectively, the current, historic gap between elevated sales volume and improving if relatively lower construction rates means that the pace of growth for new home sales will need to slow and/or the rate of home building will need to increase to balance the market. Strong levels of the NAHB/Wells Fargo HMI measure of home builder confidence are consistent with this expectation, for starts at least.

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