New home construction continues to outpace new home sales; look for inventory to grow

New construction dn-3

The U.S. Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for August 2010 showing a decrease in single-family home building permits and an increase in new home starts compared to the month before.

The report shows the following:

  • Building permits issued for single-family residences in August were at an annual rate of 401,000 which is 1.2 percent below the revised July rate of 406,000 and a decrease of 16.8 percent from a year ago when the rate was 482,000.
  • Housing starts for single-family residences in August were at an annual rate of 438,000 which is an increase of 4.3 percent from the revised rate for July of 420,000 and an decrease of 9.1 percent from a year ago.
  • Homes completed in August were at a rate of 482,000 homes, an increase of 1.3 percent from July’s revised rate of 476,000 homes and a decrease of 5.3 percent from a year ago.

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 August 2010 versus August 2009. 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 August 2010 there have been 319,600 permits issued for new homes compared with 291,100 this time last year for an increase of 9.8 percent.
    • In August there were 37,000 permits issued, a decrease of 1.3 percent from July.
  • Through August 2010 there have been 336,200 new homes started compared with 294,800 this time last year for an increase of 14.04 percent.
    • In August there were 39,700 new homes started, a decrease of less than one-percent from July.
  • There have been 325,300 new homes completed through August 2010, a decrease of 1.1 percent from the year before.
    • In August there were 41,600 new homes completed, an increase of 5.6 percent from July.

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 July, 2010 (the most recent period sales data is available for) there have been 207,000 new homes sold and there have been 283,700 new homes completed, outpacing sales by 37.1 percent.
    • For the 12-month period August 2009 through July 2010 there were 356,000 new homes sold and there were 560,800 new homes completed, outpacing sales by 57.5 percent.
  • Through the end of July there have been 296,500 new homes started outpacing the new ytd home sales activity through July by 43.2 percent.

I realize most, if not all, news reports today will be on the “great” new home numbers, we’ll probably see the DOW close higher as a result as well. I don’t get it though…while I’m happy for the construction industry which benefits from new home construction, and the economy in general as well, I still don’t see how increasing the inventory of homes for sale does anything good for the housing market at this point. As I showed above, new home construction, even at these low numbers, is seriously out-pacing new home sales…so where does the excess go? Into new home inventory..more homes for sale. The same place all the couple of million foreclosures that are coming down the pike are going to go.

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