Among May’s set of housing statistics released by the U.S. Census Bureau, perhaps the most telling is that the number of new homes sold has stayed almost exactly flat since January 2009, at about 340,000 units. This is important because, with new home starts so low, the unsold inventory has continued to drop. The number of unsold single-family new homes in the U.S. is now well below levels much earlier in this decade, going as far back as the dot.com collapse. Given stable sales and falling stock, the number-of-months inventory, at 10.2 versus a high of 12.4 in January 2009, is adjusting downward into more favorable territory, although it still has a long way to go (i.e., 4.0 to 4.5 is “normal”). 

Positive Factors Encouraging New Home Construction

There are a number of reasons for homeowners to go ahead with purchases at this time if they can line up financing. There is the $8,000 tax break for first-time home buyers. There are the record-setting low mortgage rates that can be locked in for extended periods. And there are low prices that are resulting from weak demand and building cost declines, particularly with respect to materials, although some labor is cheaper too.

In addition, there are other factors that should be working to prop up demand. For example, in the realm of demographics, there are increasing numbers of young adults wanting to embark on home ownership and family formation. And there are ongoing gains in green-card legal immigration of nearly one million per year into the U.S.  

Negative Factors Inhibiting New Home Construction

Working against the foregoing is a huge overhang of existing homes that are now owned by the banks and are being discounted in price. This will be exacerbated further by ends to government-mandated moratoriums on sub-prime mortgage foreclosures. Plus there is a round of prime mortgage foreclosures upcoming in the hardest-hit economic regions of the country, mainly in northern auto sector and durable goods-producing states.

Certain regions of the country (e.g., Florida) have half-finished condo projects that are clogging up the market. These were abandoned by developers when the fizz faded from earlier speculative building and buying fervors. And, of course, reduced employment prospects in many regions are undercutting the confidence that is needed to go ahead with a major purchase such as a new residential property.

Year-to-date Starts Nationally, Regionally, Singles and Multiples

What are most important for the construction industry are new home starts. At 532,000 units nationally in May, they were a little ahead of their five-month average for the year so far of 514,000 units. Regionally, May start levels in the Northeast and the South were slightly below their five-month averages, the Midwest was almost exactly the same and the West was considerably above its year-to-date average level (144,000 units versus 117,400 on average). Almost all markets − total national, singles and multiples and according to the four major geographic breakdowns − are down by 50%, January through May of this year versus the same time frame last year.