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New Home Sales Decreased in September; Completed Inventory Increased

by Calculated Risk on 10/26/2022 10:52:00 AM

Today, in the Calculated Risk Real Estate Newsletter: New Home Sales Decreased in September; Completed Inventory Increased

Brief excerpt:

The next graph shows the months of supply by stage of construction. “Months of supply” is inventory at each stage, divided by the sales rate.

There are 1.1 months of completed supply (red line). This is about two-thirds of the normal level.

The inventory of new homes under construction is at 6.0 months (blue line). This elevated level of homes under construction is due to supply chain constraints.

And a record 105 thousand homes have not been started – about 2.1 months of supply (grey line) – about double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices and demand.

First, as I discussed last month, the Census Bureau overestimates sales, and underestimates inventory when cancellation rates are rising, see: New Home Sales and Cancellations: Net vs Gross Sales. So, take the headline sales number with a large grain of salt – the actual negative impact on the homebuilders is greater than the headline number suggests!

There are a large number of homes under construction, and this suggests we will see a sharp increase in completed inventory over the next several months – and that will put pressure on new home prices.

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