Even with a decline in the Midwest in new home starts and completions, new home construction activity is still outpacing new home sales potentially leading to inventories increasing again.

The US Census Bureau and US Department of Housing and Urban Development (HUD) issued a their report on New Residential Construction for October 2009 showing a decrease in new home construction activity in the Midwest from September.

The report shows the following for the Midwest Region:

• Building permits issued for single-family residences in October were at an annual rate of 72,000 which is a decline of 1.4 percent from September and a decline of 12.2 percent from a year ago. 
• Housing starts for single-family residences in October were at an annual rate of 79,000 which is a decline of 3.8 percent from September and a decline of 16.8 percent from a year ago.
• Single-family homes completed in October were at a rate of 79,000 which is an increase of 3.9 percent from September and a decline of 41.0 percent from a year ago.

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 October 2009 versus October 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 October 2009 there have been 63,300 permits issued for new homes compared with 86,200 this time last year for a decline of 26.6 percent.
• Through October 2009 there have been 65,500 new homes started compared with 92,300 this time last year for a decline of 29.0 percent.
• There have been 70,300 new homes completed through October 2009, compared with 188,100 this time last year for a decline of 40.4 percent.

To see permits for new homes and new home starts drop this month I think is good. We had a spike in new homes completed as a result of some of the recent increases in starts and permits but we don’t really need to be increasing the inventory of homes for sale out there just yet. The bad news is new home construction is still out pacing new home sales.

New home sales for the Midwest Region, through September 2009, was at a seasonally adjusted rate of 71,000 homes. Even with the reduction in permits and starts, permits are still outpacing sales by a slight amount and new home starts are outpacing sales by over 11 percent. New home completions are also outpacing sales by over 11 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:

Through the end of September in the Midwest there have been 41,000 new homes sold and there have been 62,600 new homes completed, outpacing sales by a whopping 52.6 percent.

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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