Analysts Address Imbalance Between Starts, New Sales

As prices and home sales climb, many rejoice in a housing market that is finally on the mend. However, ""Capital Economics"":http://www.capitaleconomics.com/ poses the question, ""Should we be concerned that housing starts are outstripping sales?""

[IMAGE]

While some take it as a good sign that housing starts are again on the rise and construction is making a small comeback, some might cautiously wonder if the market is ready to handle an increase in construction and if we aren't headed for a repeat of the overbuilding that contributed to the past housing boom and bust.

The ""Census Bureau"":http://www.census.gov/ reports new home sales have risen 9 percent over the past year, while housing starts have risen by a much higher 37 percent.

[COLUMN_BREAK]

""With starts currently increasing faster than new home sales, that might ring alarm bells that homebuilders are starting too many homes for the level of demand,"" Capital Economics stated in its recent market update.

Capital Economics first eased any initial astonishment at these numbers by explaining that on an annualized basis December's housing starts versus new home sales numbers are not out of line with historical standards.

December's annualized housing starts totaled 954,000, while the month's annualized new home sales totaled 369,000. ""This large _levels_ difference is not unusual by past standards,"" Capital Economics stated.

Furthermore, the analytics firm explained the raw percentages are not necessarily comparable. The Census Bureau includes both single-family and multifamily homes in its housing starts data.

New home sales data only include single-family homes, excluding any built-for-sale homes such as custom-built homes. Built-for-sale homes are included in the housing starts data.

Supply remains tight in the new single-family housing market with 4.9 months' supply. Historically, supply has been about 6.2 months' supply.

Currently, the market holds about 151,000 new homes for sale, which is lower than any month before 2012, according to Capital Economics.

The firm expects both new home construction and new home sales to ""rise significantly further this year.""