New home sales increased in October. Increase completed inventory

by calculated risks 11/23/2020 10:39:00 AM

Today, in the calculated risk real estate newsletter: New Home Sales Soared in October; Increase completed inventory

Brief excerpts:

The following chart shows the months of supply by construction stage. “Months of Supply” is the inventory at each stage divided by the rate of sales.

There is 1.2 months of supply completed (red line). This is close to normal.

Inventory of new homes under construction 5.7 months (blue line). This high level of homes under construction is due to supply chain constraints.

111,000 homes have yet to be built – about 2.1 months of supply (gray line) – about twice the normal level. Homebuilders may wait to start some homes until they have a stronger understanding of price and demand.

First, as I discussed two months ago, the Census Bureau overestimates sales and underestimates inventory when cancellation rates go up, see: New Home Sales and Cancellations: Net vs. Total Sales. So, Take the title’s sales number with a grain of salt – The actual negative impact on home builders is much greater than the title number would suggest!

There are a large number of homes under construction, and this suggests that 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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