Homebuilders are doing their job creating new housing stock even as they’ve had trouble selling these homes.

By Wolf Richter for WOLF STREET.

Since mid-2024, inventory for sale of new single-family homes at all stages of construction has been about 45% to 55% higher than in 2019, and has been at the highest level since the peak in 2005-2007, at the beginning of the Housing Bust, even as sales have been hobbling along at so-so levels despite large-scale incentives and mortgage-rate buydowns and even price cuts.

In September, inventory for sale of new single-family homes at all stages of construction dipped a hair to 480,000 homes, not seasonally adjusted.

That was up by 49% from September 2019 and up by 68% from September 2020, according to the Census Bureau today. In September, homebuilders sat on 8.6 months of supply at the current rate of sales.

This is the “Housing Shortage” that the housing industry ceaselessly promotes to create a fake sense of scarcity to manipulate up prices.

Big homebuilders have to build homes because that’s their business, they cannot just pack up and leave when the market turns against them, they have to keep their businesses intact, they have stockholders and bondholders they need to make happy, they have to protect their credit ratings, and they have to work with prices and incentives to keep their sales volume up. And they’ve been doing that, even as sales of existing homes have collapsed.

Inventory of under-construction homes declined by 5.9% year-over-year to 253,000 homes in September. The decline is a result partly of under-construction-homes being sold, and partly of homes being completed without being sold and moved into the category, “completed homes for sale.” And homes where construction had just started moved into this category.

Compared to July 2019, under-construction inventory was up by 27%, and compared to September 2020 by 41%.

Inventory of completed homes for sale edged down to 111,000. Homebuilders have made some progress selling down their completed inventory from very high levels last year.

Compared to September 2019, inventory of completed homes was up by 48%. Compared to September 2021, inventory was up by 227%. Back in 2021 and 2022, there was a shortage of completed homes, as buyers, motivated by below-3% mortgages and FOMO, were swarming across the country, willing and eager to pay whatever price for homes that were move-in ready, and homebuilders accommodated them, thereby creating historically fat profit margins.

Now there’s lots of supply, and prices are down. Homebuilders have a lot of capital tied up in completed homes and are very motivated to sell them.

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. So it doesn’t show the full pricing dynamics.

But it does show the trend of how homebuilders are adjusting to reality. Homebuilder gross margins have plunged, net profits have plunged, shares have plunged, but they are building and selling homes and are adding new housing stock.

The median price – not including incentives and mortgage-rate buydowns – has been on a downward trajectory since the peak in late 2022. The 3-month average, which irons out the month-to-month squiggles, has declined by 11% from the peak in late 2022, and by 4.6% year-over-year to $393,300, the lowest since August 2021 (red in the chart).

Sales of new single-family homes at all stages of construction fell by 3.4% year-over-year to 56,000 homes in September, not seasonally adjusted.

September sales of new homes were on the same level as in September 2019, even as sales of existing homes have collapsed by 40% over the same period. This shows that homebuilders have figured out this market – stimulating sales with incentives, mortgage-rate buydowns, and price cuts – and that homeowners wishing to sell have not figured it out. Homebuilders are running circles around them.

But compared to the Housing Bubble sales in the Septembers 2005-2008, sales have plunged by over 40%.

These are middling sales on very high inventories. But sales haven’t collapsed as they have for existing homes.

By region:

A map of the four Census regions is posted in the comments below.

In the South, inventory for sale declined year-over-year by 5.3% to 287,000 new single-family homes at all stages of construction, not seasonally adjusted. Homebuilders are all talking about their issues in the South, and they’re making some headway addressing them.

But compared to September 2019, that inventory was up by nearly 70%, even as sales were roughly the same, making for 8.4 months’ supply!

These are huge inventory levels, matching roughly those at the peak during the Housing Bust, even as sales were down by 33% over the same period.

In the West, inventory for sale declined by 14% year-over-year to 103,000 new single-family homes, but were still 21% higher than in September 2019.

But sales dropped by 14% year-over-year, and by 8% from September 2019, leaving builders with 8.6 months’ supply.

In the Midwest, inventory for sale rose by 7.5% year-over-year to 57,000 new homes, same as in August, and both were the highest since 2008.

Compared to September 2019, inventory was up by 50%!

In the Northeast, inventory remained at 33,000 new single-family homes, up by 18% from September 2019.

The densely populated Northeast is a small market for new single-family homes, as most new construction is multifamily (apartments and condos).

In case you missed it: Mega and Large Investors Pull Back from Housing Market, Become Net Sellers, Small Investors Continue to Pile In

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