New home sales are declining year-over-year after soaring during the first months of the pandemic, but housing supply is on the rise, says Bill McBride in the CalculatedRisk Newsletter. New home sales were at a seasonally adjusted annual rate (SAAR) of 763 thousand in March, 8.6% below the revised February rate of 835,000, and 12.6% below the March 2021 estimate of 873,000.
Meanwhile, months of supply rose to 6.4 months in March from 5.6 months in February, but total inventory also includes new homes under construction as well as those not yet started, the share of which is at a record high 105 thousand.
The inventory of completed homes for sale was at 35 thousand in March, up from the record low of 33 thousand in several months in 2021 and early 2022. That is just over 0.5 months of completed supply (red line). This is about half the normal level.
The inventory of new homes under construction is at 4.2 months (blue line) – well above the normal level. This elevated level of homes under construction is due to supply chain constraints.
And 105 thousand homes have not been started – about 1.7 months of supply (grey line) – almost double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices.