Home Sales Outpace Construction Starts by Record Margin

Newly-built single-family home sales have outpaced for-sale single-family construction starts, according to NAHB. The association says due to the high degree of sales outpacing construction, there will be more home building ahead. Both construction and sales have experienced a tremendous rebound since this spring, but the pace of both are historically high. Home sales and new construction have not reached this point in more than a decade, and the gap between the two is unprecedented, according to NAHB. Home builders continue to sell more homes than they have started to construct, and home sales are up 69% compared to last year.

As seen above, the first period occurred during the housing boom when for-sale starts exceeded sales, leading to an inventory overhang that was part of the housing crisis preceding the Great Recession. The second separation occurred as single-family starts plummeted during the Great Recession and sales, helped by the three stages of the federal home buyer tax credit, reduced excess inventory (new home months’ supply peaked at 11.1 during the spring of 2008).

These two prior periods happened in an overbuilt environment. The script is flipped today. Months’ supply for new homes is down to a lean 3.3, and existing home months’ supply (per NAR data) is at a very tight 2.8. Thus, the third period of separation between for-sale starts and new home sales occurring now is a signal of the degree to which home building will need to play catch-up with current demand.

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