New home permits and starts increase in May; New home shortage coming?

New construction dn-3

The U.S. Census Bureau and US Department of Housing and Urban Development (HUD) issued their report on New Residential Construction for June 2011 showing a very slight increase in single-family home building permits from the month before (0.2 percent), and a 9.4 percent increase in new home starts compared to the month before.

The report shows the following new home construction activity for June 2011:

  • Building permits issued for single-family residences were at an annual rate of 407,000 homes which is 0.2 percent above the prior month and a decrease of 3.8 percent from a year before.
  • Housing starts for single-family residences were at an annual rate of 453,000 which is an increase of 9.4 percent from the prior month and an increase of 0.4 percent from a year before.
  • Homes completed were at a rate of 436,000 homes, the same as the month before, and a decrease of 36.3 percent from a year before.

As I say every month, we need to remember that all the numbers above are “seasonally adjusted” annual rates and the year over year comparisons are just comparing the numbers for the current month versus the a year before. 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:

  • For 2011 there have been 208,500 permits issued for new homes compared with 245,400 this time year for a decrease of 15.0 percent.
  • For 2011 there have been 213,200 new homes started compared with 256,600 this time last year for a decrease of 16.9 percent.
  • For 2011 there have been 197,200 new homes completed compared with 244,400 this time last year for a decrease of 19.3 percent.

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:

  • In the 12 month period through May 2011 (the most recent period sales data is available for) there were 300,000 new homes sold and there were 470,900 new homes completed, outpacing sales by 56.9 percent.

An interesting new twist on the numbers…

As I wrote about last month, a presentation I heard by Brendan Lowney of Economic Advisors, aptly titled “Groping Toward a Housing Recovery“, shed some different light on new home supply and gave me a better understanding of why we need new home starts to outpace new home sales in fact, by Lowney’s estimation, it should be 2 to 1. With this in mind, I took a look at housing starts for the prior 12 months versus new home sales and here is what I found:

  • There were 300,000 new homes sold in the 12 month period ending May 31, 2011.
  • There were 428,000 new homes started during this period or about 1.43 times the number of new homes sold. So, by Lowney’s analysis, we need about 172,000 more new homes started during this period to bring us to 2 to 1 which would be a “normal” rate.

While this is encouraging, the $64 question would be, exactly where do we need the new homes? Real estate is VERY local! I guess the first person that can answer this question (and can find financing for new spec homes) can cash in when the shortage of new homes comes……

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