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IPFS News Link • Housing

New Homes For Sale Is a Poor Measure of Supply, What's the Real Supply?

•, By Mish

The commerce department released its new residential constructing report today. 

Allegedly there is a 9 months supply of new homes for sale. 

Understanding the Month's Supply Calculation

The seasonally?adjusted estimate of new houses for sale at the end of April was 444,000. This represents a supply of 9.0 months at the current sales rate.

444,000 for sale / 591,000 sold * 12 = 9.0 Months. 

Key Points 

Of the alleged 444,000 homes for sale, 118,000 have not been started. Instead, builders sit on land, hoping for sales contracts. That's a record number of homes for sale that may not be started for many months or even years in this environment.

There are only 38,000 actual completed homes for sale. Even at depressed sales rates, that's miniscule supply. 

Arguably a better way of looking at for sale is a measure of completed homes plus homes under construction as a percentage of sales. 

326,000 for sale (started or completed) / 591,000 sold * 12 = 6.6 Months.