High New Home Inventory: What it Means for Home Building

Housing Data
Published

Housing economists typically advise that a balanced market inventory is a five- to six-months’ supply — meaning that is a measure of how many months it would take for that count of home inventory to be sold at the current monthly sales rate.

Inventory larger than a five- to six-month supply would suggest weaker or declining home price growth and home building activity. Lean inventory levels (less than a five- to six-month supply) tend to lead to price growth and gains for home building activity.

In the Census May 2024 newly built home sales data, the current months’ supply of inventory is 9.3. Some analysts have noted that, given the five- to six-month benchmark, that this means the building market for single-family homes is possibly oversupplied, implying declines for construction and prices lie ahead.

However, this narrow reading of the industry misses the mark. First, it is worth noting that new home inventory comprises homes completed and ready to occupy, homes currently under construction and homes that have not begun construction. That is, new home inventory is a measure of homes available for sale, rather than homes ready to occupy. In fact, just 21% of new home inventory in May comprised standing inventory or homes that have completed construction (99,000 homes).

More fundamentally, an otherwise elevated level of new home months’ supply is justified in current conditions because the inventory of resale homes continues to be low. Indeed, according to the National Association of Realtors, the current months’ supply of single-family homes is just 3.6, well below the five- to six-month threshold. The vast majority of homes for sale are in the resale market. It is this lack of inventory that has produced ongoing price increases despite significantly higher interest rates over the last two years.

NAHB estimates that the combined new and existing single-family home inventory is at a 4.4 months’ supply, which qualifies as low. In other words, overall current inventory levels continue to support on a national basis limited gains for home building and upward pressure on home prices.

NAHB Chief Economist Robert Dietz provides an in-depth analysis in this Eye on the Economy post.

Subscribe to NAHBNow

Log in or create account to subscribe to notifications of new posts.

Log in to subscribe

Latest from NAHBNow

Economics

Jul 03, 2025

Consumer Confidence Retreats in June

After a strong rebound in May, consumer confidence resumed its downward trend in June. Consumers remain concerned about the economy and labor market amid ongoing uncertainty, especially around tariffs.

Sponsored Content

Jul 02, 2025

5 Proven Strategies Smart Builders Use to Grow in Any Market

Sound Capital has worked with builders across market cycles for over 20 years. They have seen who thrived when others pulled back, and they've studied the strategies they used to scale while competitors were sidelined. Here are five things they all had in common.

View all

Latest Economic News

Economics

Jul 03, 2025

Solid Job Growth in June

The U.S. labor market continued to show resilience in June, with steady job gains led by state/local government and health care sectors.

Economics

Jul 02, 2025

Two or More Story Home Starts Rebound in 2024

Over half of new single-family homes built in 2024 were two or more stories, according the recent release of the Census Bureau’s Survey of Construction (SOC). After declining in 2023, the share of homes started with two or more stories increased again in 2024, continuing the upward trend in place since 2020.

Economics

Jul 01, 2025

May Private Residential Construction Spending Dips

Private residential construction spending fell by 0.5% in May, marking the fifth straight month of decreases. This drop was primarily driven by reduced spending on single-family construction. Compared to a year ago, total spending was down 6.7%, as the housing sector continues to navigate the economic uncertainty stemming from ongoing tariff concerns and elevated mortgage rates.