US home building trends shift due to limited inventory

Posted on July 18, 2024   |  

Low inventory of single-family homes has been a major issue in the US housing market for years.

With limited resale homes available, builders have increased construction despite higher mortgage rates.

Mortgage rates in May averaged 7.06%, leading to an 11.3% decrease in sales of newly built single-family homes, totaling 619,000 annually.

New single-family home inventory grew by 1.5% in May to 481,000 units, up 12.9% from the previous year, equating to a 9.3-month supply at the current pace.

The market for new single-family homes may be oversupplied, as a balanced market typically has a five- to six-month supply. Existing single-family home inventory stands at a mere 3.6-month supply, driving price increases despite higher interest rates.

Combined, new and existing single-family home inventory totals just 4.4 months.

The median price of new homes decreased to $417,400 in May, down nearly 1% from a year ago, influenced by smaller home sizes and builder incentives. 

Meanwhile, the Case-Shiller Home Price Index showed a 6.29% annual gain in April, following a 6.52% increase in March, with only two months of year-over-year declines during this interest rate cycle.