New home construction is on the rise in November…. WHY??? They aren’t selling as fast as they are being built…didn’t we learn our lesson?

The U.S. Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for November 2009 showing an increase in new home construction activity from October.

The report shows the following:

• Building permits issued for single-family residences in November were at an annual rate of 473,000 which is 5.3 percent above the revised October rate of 449,000 and down 12.1 percent from a year ago.
  • For the third consecutive month the Northeast region had the best numbers of the regions with an increase in permits of 6.4 percent from the prior month, and an increase of the same amount from a year ago. The other three regions also saw an increase in building activity in November from October, the south was up 6.0 percent, the west 5.3 percent and the midwest 2.7 percent. The largest increase from a year ago was the West at 16.3 percent, then the South at 15.3 percent and the Midwest at 1.4 percent.
• Housing starts for single-family residences in November were at an annual rate of 482,000 which is 2.1 percent above the revised October rate of 472,000 and 5.5 percent above a year ago.
  • The west and south regions had increases in building starts from October at 5.4 percent and 4.4 percent respectively. The midwest and northeast both had decreases in building starts from October at 6.2 percent and 2.1 percent respectively. The midwest is the only region that has a decrease in housing starts from a year ago (13.6 percent) the south had an increase of 12.9 percent, the northeast and increase of 12.2 percent and the west an increase of 2.1 percent from a year prior.
• Single-family homes completed in November were at a rate of 524,000, even with the revised rate for October of 524,000.
  • The midwest saw a 13.0 percent increase in completions followed by the west region with a 2.3 percent increase. The south and northeast saw declines of 0.8 percent and 18.3 percent respectively. All regions are down significantly in completions from a year ago. The south is down 35.3 percent, the midwest down 28.7 percent and the northeast and west are both down 25.8 percent.

Something to remember is all the numbers above are “seasonally adjusted” annual rates and the year over year comparisons are just comparing the numbers for November 2009 versus November 2008. Another way I like to look at where things stand is to simply look at the year to date data; actual numbers, not seasonally adjusted, compared to last years ytd numbers at this same time. I think this may give a little better comparison so those numbers are below:

• Through November 2009 there have been 401,000 permits issued for new homes compared with 545,000 this time last year for a decline of 26.4 percent (October YTD numbers were down 29.0 percent).
• Through November 2009 there have been 414,400 new homes started compared with 595,900 this time last year for a decline of 30.5 percent (October YTD numbers were down 32.5 percent).
• There have been 467,900 new homes completed through November 2009, compared with 752,500 this time last year for a decline of 37.8 percent (October YTD numbers were down 38.5 percent)

OK, last month I said it was good to see new home permits and sales drop as I don’t think we need to increase inventory yet. Obviously no one listened to me and everything was up this month. Granted, these “up” numbers are seasonally-adjusted rates, and you know how I feel about that, but they are up none the less.

The problem is, new home permits, starts and completions are still outpacing new home sales even when we use all the seasonally-adjusted annual rates. The new home “seasonally-adjusted” sales rate in October was 430,000 homes….however, as I have reported here, new home permits, starts and completions are still out-pacing sales, and by a pretty signifcant margin.

Let’s do one of my favorite things and look at the raw numbers and not seasonally-adjusted numbers to compare construction activity to sales:

Through the end of October there have been 328,000 homes sold and there have been 467,900 new homes completed, outpacing sales by 42.6 percent. At the end of October there were 240,000 new homes for sale, a 6.7 month supply based upon the October seasonally adjusted sales rate. October added 68,800 completed new homes to inventory and it is very unlikely (I’ll even say impossible) that we will see that many sales in November so we are going to see inventory increase. This is the same statement I made last month when there were 49,000 new homes completed…I ended up being right, there were only 35,000 new homes sold in October (btw, my projections called for 32,000 new homes sold…not bad for an amateur).

I do realize that once we truly get into a recovery of the housing market we will, at some point, need to see the rate of new home construction increase to meet demand but I don’t think the time is now. I also feel the recovery is going to be VERY gradual when it comes and we are not going to see a big, and rapid spike, in sales necessitating the same in home starts, but instead a slow, gradual increase in sales which will sustain a slow, gradual increase in new home construction.

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