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Economic trends.


Each month, a new batch of housing market statistics is released that provides essential gauges on how the housing sector is doing. Three of the most important releases are housing starts, new home sales and existing home sales. The first of these is produced by the U.S. Department of Commerce; the second is produced jointly by the U.S. Department of Commerce and the U.S. Department of Housing and Urban Development; the final one is prepared by the National Association of Realtors (NAR).

Each one has something a little different to say about the housing sector.

Housing starts--The housing starts report, released around the middle of each month with results from the preceding month, provides data on building permits and housing starts by number of units (e.g., 1-unit, 2-4 units and 5-units or more) and by major census region (e.g., Northwest, Midwest, South and West).

The data are collected through a monthly Census Bureau survey. The process begins by soliciting information on building permits from local governments. Then, a sample of permits is selected, and the owners and/or builders holding the permit are asked if the unit has been started. A units are considered started once excavation begins for the footings or foundation. In the case of multifamily units, all units are considered started once excavation for the building begins.

If units covered by permits have not yet been started, follow-ups are made to determine if and when a start occurs. Otherwise, the start appears in the housing starts statistics in the survey month. Roughly 60 percent of single-family units are started in the same month in which a permit is issued. However, only about 35 percent of structures with 5-units or more are started in the same month.

New home sales--The survey underlying housing starts is also used in estimating new home sales. In the new home sales report, the number of sales, units for sale and sales prices are reported each month, with the number of sales and units for sale further broken down by region.

The estimates are made by first classifying single-family housing starts into one of four categories:

* "Spec built," where the land and structure are for sale as

a unit. * The unit is being built for the owner on the owner's land

by a general contractor. * The unit is being built on the owner's land with the

owner serving as the general contractor. * Units built for rent.

The first category accounts for about two-thirds of single-family starts and, in this classification scheme, is also the only category associated with new home sales. Consequently, new home sales are a subset of housing starts.

That is not to say, however, that the timing of starts and sales is exactly the same. As noted, a start is recorded once excavation begins. However, a new home sale is recorded when a sales contract has been signed or a deposit has been accepted. Consequently, a sale may be recorded when a couple signs a contract for an unbuilt house after looking at models--a case where the sale would lead the start--or they could buy the model or another completed unit--a case where the start leads the sale. In any case, the two--starts and sales--will ultimately be linked.

Existing homes sales--Existing home sales are based on compilations of transactions reported to NAR by over 550 boards of Realtors across the country. Data on number of units and prices are reported by region each month.

The transactions are not all reported on the same basis. Some boards report transactions as of the signing of a contract, others report transactions at the time of closing. Consequently, in any given month, existing home sales reflect both contracts signed in that month and some of those signed in the preceding few months.

Table 1 shows the three major indicators for the past six years or so. Both single-family housing starts and new home sales peaked in 1986, and are currently 25 to 30 percent below their respectively peaks. Existing home sales, on the other hand, peaked in 1988 (although the 1988 peak was only very slightly greater than the 1986 level), then came down, but have since revived to very close to the previous peak.

One possible reason for the discrepancy between new construction--reflected by starts and new home sales--and transactions of already existing units--reflected by existing home sales--is that the latter units tend to be much more moderately priced. The median price of new homes is around $120,000, but the median price of existing homes is only about $102,000. It is possible that affordability constraints pushed more and more buyers away from new homes in the late 1980s and early 1990s, and toward more moderately priced existing homes. That would explain both the lackluster performance in the new home market and the relative stability in the existing home market.

 Millions of Units, Unless Otherwise Noted
 Single-Family New Home Existing
Year Housing Starts Sales Home Sales
1985 1.072 .688 3.214
1986 1.179 .750 3.565
1987 1.146 .671 3.526
1988 1.081 .676 3.594
1989 1.003 .650 3.440
1990 .895 .534 3.296
1991 June .868 .525 3.590
Percent change, peak -26.4% -30.0% -.1%

to June 1991

Thomas M. Holloway Senior Economist
COPYRIGHT 1991 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:U.S. housing statistics
Author:Holloway, Thomas M.
Publication:Mortgage Banking
Date:Sep 1, 1991
Previous Article:Secondary market.
Next Article:Boardroom view.

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