David Crowe

Chief Economist 


Washington, D.C.

Anje Jager/agencyrush.com David Crowe Chief Economist NAHB Washington, D.C. dcrowe@nahb.com

Home building is both cyclic and seasonal, fluctuating across years and within a year. We've just witnessed one of the worst cyclic variations in home building history. Single-family housing starts dropped 73% from 2005 to 2009, and new-home sales dropped 76% from 2005 to 2011. Nothing outside the advent of WWII compares.

The seasonal fluctuations throughout a year are more predictable, but they are different across geography. The accepted convention is that new-home contract signing occurs most frequently in the spring and early summer, so builders start homes in the late winter and early spring to be ready. This accepted trend is based on the observation that home buyers want to move when the weather is reasonably comfortable and their children do not have to change schools within a school year. In many communities school years are still based on releasing children during crop growing or amusement park seasons. The facts don't necessarily support conventional thinking.

The U.S. Census Bureau reports top line monthly housing starts and sales figures as seasonally adjusted annual rates, meaning they are adjusted to reflect the expected month-to-month fluctuations as if the levels actually reported were maintained for the entire year. The reporting agencies use some well-developed statistical techniques to adjust up or down the actual amount to reflect differences from a smooth one-twelfth per month rate. The seasonal adjustments make month-to-month comparisons more meaningful and less dependent on how much the change may have been due to weather or expected monthly fluctuations. Oftentimes "unusual" weather is still cited as a reason why a particular shift was different than expected.

Actual activity also is reported so it is possible to see how starts and sales do change across the year, and how the pattern may be different across the U.S. Looking at patterns established over the past 40 years suppresses unusual monthly changes and provides a picture of peak and trough months for single-family housing starts and sales.

The peaks are different across regions in an expected weather-driven pattern. The Northeast and Midwest census regions (roughly states north of the Ohio River and Mason-Dixon Line and east of the Mississippi River) have more monthly extremes in starts than Western and Southern states. More starts occur in June than any other month in the Northeast and Midwest (10.5% and 11.1% of the year's starts, respectively), followed by May (9.9% and 10.8%, respectively). The warmer South region starts the most homes in April (9.4%), while the West starts the most homes in May (9.9%).

The one-fifth of a year's starts in a two-month span in the Northeast and Midwest is balanced by lower distribution in the colder, snowier months. February is the slowest month in the Northeast by more than half the peak levels (4.8%), and January is the slowest month in the Midwest also by more than half the peak level (4.1% of a year's starts). And since the South and West do not have as high a concentration in the peak spring months, they also have less extreme drops in the winter. The lowest production months are December (6.6% and 6.3% of production in the South and West, respectively) and January (7% and 6.6%, respectively).

New-home sales have less dramatic variations across the year than starts and also smaller differences across regions. Sales of new homes are recorded when a contract is signed, not when the sale is closed. The peak month for new-home sales is April in the Northeast (9.7% of the year's sales) and Midwest (10%), and March for the South (9.8%) and West (9.9%). The following month is a close second in each region: May for the Northeast (9.5%) and Midwest (10%); April and May for the South (tied at 9.3%); and April for the West (9.7%).

Home building is seasonal (slightly less so in warmer climates) and spring—as defined locally—is the peak.