Homebuilders have been doing their job creating lots of new housing stock, but demand is weak, and supply sky-high.

By Wolf Richter for WOLF STREET.

Inventory of single-family homes at all stages of construction rose year-over-year to 487,000, not seasonally adjusted, up by 50% from August 2019 and up by 72% from August 2020, according to the Census Bureau today.

These inventory levels over the past two years are the highest since the peak of the housing bubble in 2005-2007, even as sales of new homes have been far below the sales in 2005-2007. This is the infamous “Housing Shortage” that the housing industry constantly proffers to manipulate up prices.

These new additions to the US housing stock waiting to be bought are precisely what the housing market needs, and homebuilders are building them. In August, they sat on 8.5 months of supply at the current rate of sales. Build them, and they will come, maybe, if the price is low enough and incentives high enough – and we’ll get to that in a moment.

Inventory of under-construction homes declined by 5.8% year-over-year to 261,000 homes. The decline occurred in part because some were sold, and in part because some were completed without being sold and moved into the next category, “completed homes for sale.”

Compared to July 2019, inventory was up by 32%, and compared to August 2020 by 50%.

Under-construction inventory for sale is what is in the construction pipeline, and is for sale, but hasn’t been sold yet. Homebuilders have quite a bit of capital tied up in this inventory and are motivated to sell it.

Inventory of completed homes for sale remained at 112,000 after getting sold down from the very high levels at the end of last year.

Builders have a lot of capital tied up in these largely move-in ready “spec homes” and are very motivated to sell them.

Compared to August 2019, inventory of completed homes was up by 47%. Compared to August 2021, inventory was up by 230%, and there was a shortage of completed homes in 2021 and into 2022, as buyers, armed with below-3% mortgages and suffering from massive FOMO attacks were suddenly swarming all over the place buying up homes that were move-in ready, and paid a huge price for them, as homebuilders exacted their pound of flesh.

Big homebuilders have adjusted to reality. They have to build and sell homes to stay in business, even if they make less money or lose money, and so they brought their effective prices down to sell those homes, and they did it by lowering prices, piling on incentives, buying down mortgage rates (which is costly for builders), and developing lower-cost, more efficient construction methods to bring their own costs down.

Homebuilder gross margins have plunged, net profits have plunged, shares have plunged, but they’ve adjusted to this market and are building and selling homes and are adding new housing stock.

Lennar, gunning to be the #1 homebuilder, has been aggressive in its pricing. It discloses its quarterly average selling price that includes all incentives and mortgage-rate buydowns. It shows how buyers in the FOMO moments of 2021 and 2022 were taken to the cleaners because they begged to be taken to the cleaners, and how reality has set in since them.

Since the peak in Q3 2022, the average selling price of homes Lennar sold has dropped by 24%, to $372,000, the lowest since 2017, as it reported for its Q3 on September 16.

Lennar’s gross margin has plunged by nearly half, to 15.8% in Q3 2026, from the big-fat 29.2% in Q3 2022. The Q3 2026 gross margin was about 1 percentage point below the 2018 gross margin. Net profits have plunged. And shares have plunged by 56% from the high in September 2024.

The national median price of new single-family homes sold does not reflect the incentives and mortgage-rate buydowns. It only reflects prices written into sales contracts.

It declined by 14% from the peak in October 2022, and by 5.8% year-over-year, to $393,700 in August (blue in the chart below).

The 3-month average, which irons out the month-to-month squiggles declined by 10.1% from the peak in Oct 2022, and by 2.6% year-over-year to $397,400, the lowest since September 2021 (red in the chart).

Sales of new single-family homes at all stages of construction where unchanged year-over-year at 57,000 homes in August, not seasonally adjusted, and prior months’ sales were revised down. This is also where sales had been in August 2019.

Three-month average sales edged up year-over-year by 0.6%.

But compared to the Housing Bubble sales in the Augusts 2005-2008, sales have plunged by 45%.

These current sales, about 45% below where they’d been in 2005-2008, make the current sky-high inventories that are where they’d been in 2005-2008 that much more of a glut, see first chart above.

By region: inventories & sales.

A map of the four Census regions is below the article at the top of the comments.

In the South, inventory for sale declined to 291,000 new single-family homes at all stages of construction, not seasonally adjusted, but that was up by 68% from August 2019.

Inventories in August were level with the very peak of the Housing Bubble in mid-2006, but sales have plunged by 35% since that time. So a lot of supply for only moderate demand despite aggressive pricing action by homebuilders.

In the West, inventory rose to 105,000 new single-family homes, up by 21% from August 2019.

These inventory levels are right back during the housing bubble peak years of 2005-2008.

Sales plunged by 30% year-over-year in the West, and by 40% from August 2019. This shows the supply situation: Inventory up by 21% from August 2019, but sales down by 40%!

In the Midwest, inventory for sale rose to 58,000 new homes, the highest since 2008, up by 14% year-over-year, and up by 57% from August 2019.

In the Northeast, inventory for sale rose to 33,000 new single-family homes, up by 18% from August 2019. This is a very small market for new single-family homes, as most new construction in the densely populated Northeast is multifamily (apartments and condos).

In case you missed it: Oh Dear, Condo Prices Dropped by 15% to 34% in 34 Bigger Markets. 6 Plunged Back to Where They’d Been 20 Years Ago

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