In Tuesday’s new home sales report from the Census Bureau, monthly supply hit recent highs at 6.2 months and 5.9 months on the more critical three-month average.
I focus on the monthly supply as being the most critical data for the new-home market. The new home sales market is a small but essential part of the overall market and the economy. I have long said that the builders don’t build for the existing home sales market; they build based on demand for their specific products. When the monthly supply of new homes grows, builders will throttle back construction to control the flow of products in order to protect their margins.
From the Census report: The seasonally adjusted estimate of new houses for sale at the end of July was 367,000. This represents a supply of 6.2 months at the current sales rate.