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Builders Build: New Home Sales Are Not A Leading Indicator, Got It?

The stats for new home construction showed more brisk activity than was expected [WSJ]. [1]

According to the Commerce Department:

“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’? [2] he concludes:

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