Home Builders Have No Advantage Over Existing Inventory


The slow and steady story for housing starts continues with today’s report. The Census Bureau reported  that there were 1,155,000 housing starts in July. The starts numbers for the previous month were revised higher. While housing starts data on a month to month basis can be wild, the trend for 2017 is clear. We have growth in single family construction but the boom in multifamily construction has slowed tremendously and now construction of single family residences has to take on more of the load for total growth.

July ‘17 building permits down 4.1% to 1,223,000 (annualized). Starts down 4.8% to 1,155,000. #MFGDAY

Housing Starts:

Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,155,000. This is 4.8 percent (±10.2 percent)* below the revised June estimate of 1,213,000 and is 5.6 percent (±8.5 percent)* below the July 2016 rate of 1,223,000. Single-family housing starts in July were at a rate of 856,000; this is
0.5 percent (±8.5 percent)* below the revised June figure of 860,000. The July rate for units in buildings with five units or more was 287,000

Building Permits:

Privately-owned housing units authorized by building permits in July were at a seasonally adjusted annual rate of 1,223,000. This is 4.1 percent (±0.9 percent) below the revised June rate of 1,275,000, but is 4.1percent (±1.8 percent) above the July 2016 rate of 1,175,000. Single-family authorizations in July were at a
rate of 811,000; this is unchanged from the revised June figure of 811,000. Authorizations of units in buildings with five units or more were at a rate of 377,000 in July

As we can see in the chart below, the deviation of  single family starts from multifamily starts began in earnest when the expiration of the 2015 multifamily tax credit front loaded demand for single family homes but had little effect on multifamily unit growth.

From Calculated Risk:


Single family residence starts are up 10.9% year over year and 9% year to date while multifamily starts are down 35% year over year. Even with a long economic expansion, the longest job expansion on record and mortgage rates under 5% since early 2011, we still have low total housing starts compared to the population.

From Doug Short

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Slow and steady growth has been my call since I have started to write about housing economics back in 2010 and nothing has changed that thinking on this.

I am in 100% disagreement with the thesis that the new home sales have an advantage over existing homes because existing home inventory is low.  The six months moving average vs population of new home sales is below the level we experienced in five out of the last six economic recessions,  while monthly supply of new homes sector is higher in this cycle than at any point from 1996-2005.

Existing homes have the advantage of being cheaper and available in a larger geographical area compared to new homes. Nevertheless, a lot analysts were off on call for the rate of growth of total housing starts and yet the thesis is that new home sales are benefiting from low existing inventory.

In short, the monthly supply of existing homes has always been below that of new homes since 2013,  but new home sales haven’t come close to the historic 6-1 ratio it has with existing home sales. Look for years 2020-2024 to be the time from that we get historical norms in new homes sales vs existing home sales.

Existing home sales are up just 0.7% in last 12 months.  is citing inventories as a key factor. They are pretty low.

This is the weakest housing recovery in terms of  new home unit sales ever in U.S. history, but this makes sense considering  our demographics, even though we have over 147,000,000 people working and rates have never been this low for this long in this economic cycle. The reality is  that builders  are building for  the uppers-middle class and the rich, not the average American or those looking for their first home. For this reason, new home sales are low.  Builders are  smart to not over built considering the soft demand. In a few years the demographics for housing will get better. However, don’t fall prey to this theory that the builders have an advantage because existing inventory is low.   (It’s a trap that has no basis in the data).

From Doug Short:


Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing marketLogan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami