Yesterday we wrote about a troubling divergence in the housing market, namely, the difference between housing completions and new home sales.
The concern: if completions are outpacing sales, then inventories must be piling up.
Millan Mulraine at TD Securities first pointed to this trend back in October, using a chart comparing accumulated housing completions to accumulated new home sales. Here is his updated chart, which he sent out yesterday.
Photo: TD Securities
However, we’re learning that this analysis wasn’t sound.
Paul Diggle at Capital Economics points out that despite housing starts rising 37 per cent over the past year, and new home sales rising just nine per cent, this isn’t a sign of speculative overbuilding. Instead, he explains, “this gap reflects the fact that the starts numbers are picking up the strength of the rental sector, but the sales figures are not.”
Instead, Diggle suggests we look at ‘single-family housing starts built for sale’. From “eye-balling” this chart, he says, “it doesn’t look like homebuilders are breaking ground on too many single-family homes at present. Indeed, supply conditions in the new single-family market are still very tight.”
Photo: Capital Economics
Bill McBride at Calculated Risk points out that total completions are always higher than new home sales.
He also points us to the Census Bureau which says “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”.
Photo: Calculated Risk
McBride also directs us to a non-seasonally adjusted graph of four start categories (single family built for sale, owner built (includes contractor built for owner), starts built for rent, and condos built for sale), since 1975. This chart shows that built for rent has increased significantly.
Basically, McBride says builders are keeping inventories in check, and the increase is tied to demand not speculative building.
So, it appears that one of the few areas of concern in the housing market has been quelled.
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