The stats for new home construction showed more brisk activity than was expected [WSJ].

According to the Commerce Department:

  • Housing starts increased 5.3% to a seasonally adjusted annual rate of 2.123 million units.

  • Permits for future building rose 2.5% last month to a 2.155 million annual rate.

“I was a little surprised by the strength” of new construction, said David Seiders, chief economist at the National Association of Home Builders. However, he said much of the activity was tied to new housing permits and sales orders placed several months ago.

NAHB reports that builders are becoming more dependent on sales incentives versus last spring.

This seems to be a contradiction. I had a prominent real estate broker call me yesterday after this report was released and tell me her listings were not selling as quickly as before and yet the NAHB stats were so positive.

My response:

Builders know how to build and they keep doing it ’till they can’t build anymore.

So new construction stats do not immediately relate to housing demand.

Barry Ritholtz of The Big Picture, one of my favorite blogs, agrees. In his post Howz Real Estate Doin’? he concludes:

Bottom line: New home starts and permit apps are not a leading indicator of the housing cycle.

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One Response to “Builders Build: New Home Sales Are Not A Leading Indicator, Got It?”

  1. John Philip Mason says:

    I’d be curious to know what percent of new single family construction is now done by amateurs, builders in the business less than 3-5 years. If the numbers are significant, and I’m guessing they are higher than historically normal, then it’s possible these folks don’t know what signs to look for. During the past couple years I’ve heard the same story from several different long-time builders. In each case they speak of the high price of land and how they have been out-bid on lots by people new to the business. When Toll Brothers revises projections downward and Donald Trump is selling prime land rather than developing it himself, it might be time to stop and take a good look around.

    I’ve also recently been involved in two different cases where banks are considering foreclosing on new homes, each built by new builders who over-estimated the selling prices and profits to be realized. Let’s just keep our eyes (and our minds) open.