Weather & Economy Provide One-Two Combination.  Not a Knock-Out Punch, But it Did Hurt

New housing starts edged lower in February as bad weather and a similar ongoing bad economy slowed residential building permits to an almost one-half million annualized pace.  The continuing below normal results were anticipated, however.  Further reduced new home sales numbers will not be a surprise in coming months.  After all, if fewer are being built, fewer will be sold. 

So what is normal?  And when do we get there?  And what does it take to get there?

The following table shows existing homes sales, new home sales and residential permits commencing in 2001 (in which 2002 was probably the last ‘normal’ market we had, following the recession of 2001 and prior to the significant below-market rates provided by then Federal Reserve Chief Economist Alan Greenspan).   These data reveal several important insights into housing numbers. 

• First, as far as housing sales numbers go, existing home sales are the dog and new home sales are the tail of the dog.  A normal market will contain 5.68 existing home sales for each and every new home sale. (These are national statistics, so a local market growing jobs at an above-average rate will have a different ratio and vive versa).
• 100 new home sales will occur for every 135 single family permits issued (on average)
  Which portends an estimated 671 thousand single family permits issued in 2010   
• 100 new home sales occur on average for every 175 total residential permits (on average)
  Which portends an estimated 870 thousand total residential permits issued in 2010 of which 199 thousand will be multi-family

		Thousands
		Existing Home Sales	New Home Sales	Single Family Permits	Multi Family Permits	Total Residential Permits		Existing Sales Divided by New Home Sales	Single Family Permits Divided by New Home Sales	Total Residential Permits Divided by New Home Sales
	01	5,295	908	1235.6	401.1	1,636.7		5.83	1.36	1.80
	’02	5,570	977	1350.7	420.9	1,771.6		5.70	1.38	1.81
	’03	6,183	1086	1473.0	428.9	1,901.9		5.69	1.36	1.75
	’04	6,779	1203	1616.6	456.7	2,073.3		5.64	1.34	1.72
	’05	7,076	1283	1676.3	471.8	2,148.1		5.52	1.31	1.67
	’06	6,478	1051	1381.9	460.7	1,842.5		6.16	1.31	1.75
	’07	5,652	776	985.6	418.8	1,404.4		7.28	1.27	1.81
	’08	4,913	485	504.4	329.8	907.3		10.13	1.04	1.87
	09p	5,156	373	388.5	148.9	523.2		13.82	1.04	1.40
	’10f	5,700	497
	’11f	6,257	686
				Average 2001-2005				5.68	1.35	1.75

2010-2011 Forecast: Fannie Mae, February 2010      Analysis: Stewart Title Guaranty Company

New home sales will rise as soon as employment increases.  And that has yet to occur.  The coming months will show tepid job growth.  Thus, from a job driven perspective, 2010 is going to be less than normal.  From a builder’s perspective, 2010 is going to be abysmal. But at least improving a little bit.      

Housing starts drop 5.9% to 575,000 rate 

Tags: home sales • Home slaes • housing starts • permits