skip navigation
Blog

Stay up to date on timely topics and market events. Subscribe to our Blog now.

ECONOMY
March 23, 2022

Homebuilding Data Mixed in February, With Starts Up and Sales Down

By Michael J. Bazdarich, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

The U.S. Census Bureau announced this morning that sales of new homes declined 2.0% in February alongside a -1.6% revision to the January estimate (although the December estimate was revised up). The reported declines there are in modest contrast to the data on single-family housing starts, which showed a 5.7% increase in February on top of an upward revision to the January estimate. These somewhat disparate strands are plotted in the accompanying chart.

For the last year plus, our take has been that homebuilding would trend steadily lower. While the economy was recovering nicely from the 2020 shutdown-induced recession, we thought homebuilding had overshot its rebound in 2020. We didn’t see what in the demographics had changed due to Covid in a way that could be favorable to household formation trends. Stimulus checks are of little or no value for either qualifying for a mortgage or making ongoing mortgage payments. In addition, job prospects and employment levels had if anything deteriorated in the wake of Covid, so that Gen Xers and Millennials who had continued to live with their parents or in groups during the 2009-2019 post-GFC expansion would continue to do so post Covid. So, following a brief, overdone, post-shutdown bounce, we thought homebuilding would retreat in 2021 and 2022 back to pre-Covid norms.

This is the story that played out over most of 2021, as both housing starts and new-home sales declined steadily and fairly sharply. However, both series then saw some further bounce in November 2021 and after. For new-home sales, at least, activity has since begun to subside again. However, starts have remained elevated over the last four months.

Exhibit 1: Sales and Starts of New, Single-Family Homes
Explore Sales and Starts of New, Single-Family Homes
Source: Census Bureau. As of 28 Feb 22. Select the image to expand the view.

Said start elevation is most noticeable in the South, where over half of US homebuilding takes place and which has benefited most from the ex-urbanization following the 2020 Covid shutdown. Starts also remain somewhat elevated in the West as well (which accounts for about 25% of US homebuilding). Meanwhile, with today’s new-home sales data, sales have retreated all the way back to pre-Covid levels in all regions except the South. And even in the South, single-family starts are almost 200,000 units per year above pre-Covid levels, while new-home sales are “only” 60,000 units per year above pre-Covid levels.

In other words, starts remain enough above sales levels to keep inventories of unsold new homes rising pretty much everywhere. Inventories have held at six months’ worth of sales even since last summer, compared to long-term norms of about four months’ sales.

Our best guess is that starts will begin to retreat again in coming months, to bring them back in line with sales and to prevent an inventory glut in the new-home market. Still, we have to acknowledge that the starts data have been at odds with this assessment for the last four months.

© Western Asset Management Company, LLC 2022. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Brazilian Central Bank. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.