The homebuilders only have 80,000 completed new homes for sale — in a country of over 336 million people with more than 157 million people working. Why so low? Well, builders are in business to make money, they’re not a charity. It’s not the safest business model either because builders take a contract to buy a home and then, from start to finish, hope that mortgage rates don’t jump on the buyer by the time the home is ready.
So, looking at the chart below, it shouldn’t be shocking that we only have 80,000 new homes completed and ready for sale. In fact, even during the years of the housing bubble crash, this number never reached 200,000.
When some people say millions of new homes are about to hit the market because we have so many homes under construction, this means they don’t read or understand the new home sales report.
From Census: New Home Sales: Sales of new single‐family houses in January 2024 were at a seasonally adjusted annual rate of 661,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.5 percent (±19.9 percent)* above the revised December rate of 651,000 and is 1.8 percent (±19.4 percent)* above the January 2023 estimate of 649,000.
As we can see in the chart below, new home sales aren’t booming by any means; even with the builders paying down rates, we are nowhere near to the run up in demand we saw during the housing bubble years that took us toward 1.4 million new homes being sold. So, the bar is still low if mortgage rates can come down and the builders can sell more homes.
Monthly supply
From Census: For Sale Inventory and Months’ Supply:The seasonally‐adjusted estimate of new houses for sale at the end of January was 456,000. This represents a supply of 8.3 months at the current sales rate.
Here’s my model for understanding the builders:
When supply is 4.3 months and below, this is an excellent market for builders.
When supply is 4.4-6.4 months, this is just an OK market for builders. They will build as long as new home sales are growing.
When supply is over 6.5 months, the builders will pause construction.
This cycle in housing is so unique because the builders have such a high level of backlog orders that they will take their time getting them to the market and sell homes in a proper timeline. The builders are making sure they can sell the homes coming to the market. As we can see below, they need to cautious about this.
One of the things I like to do is break down the monthly supply data into subcategories. People sometimes believe that the monthly supply of new homes means live, completed homes ready to buy, but that isn’t the case. In this report:
1.5 months of the supply are homes completed and ready for sale — about 80,000 homes.
4.9 months of the supply are homes that are still under construction — about 270,000 homes
1.9 months of the supply are homes that haven’t been started yet — about 106,000 homes
As we can see from the data above, new home sales aren’t exactly booming, and the builders still have a big backlog of homes to work through. This is why they’re paying down mortgage rates to move product, because the last thing they want is for the number of new homes available for sale to build up — then they would have to cut prices or pay more for lower rates.
This is a business, folks, and the apartment boom is already over, so all the builders have left is single-family homes showing permit growth. That’s why we sit here today with only 80,000 completed new homes available for sale.
ENB
Sandstone Group
