Sales of new, single-family homes rose 4.4% in July, though that gain was partially offset by a -1.9% revision to the June sales estimate. As you can see in the chart, both new-home sales and single-family starts have been trending higher this year, something that was not in our forecast at the start of the year.
Though sales are up this year, starts have risen further, and indeed, today’s report shows additional increases in inventories of unsold new homes. Currently, new-home inventories are equivalent to 7.3 months’ worth of sales, compared to normal inventory-sales ratios for new homes of about 4 months.
Housing is a tale of two sectors, with existing-home inventories at a low 3.4 months’ sales and existing homes reputed to be in short supply, even while the new-home market looks to be overbuilt. The common Street-wise way of reconciling these conflicting indicators is to disparage the accuracy of the new-home inventory data. However, our thought is that existing-home data reflect the rate of turnover of the housing stock (so that low inventories of existing homes are a sign of both low demand and low supply), while the new-home data reflect the ability of the economy to absorb the new homes being built.
Turnover could be low due to demographic and mortgage-rate factors, even while the supply of new homes has gotten ahead of demand. This take on the data would imply continued downward pressure on housing starts and residential construction. Instead, after sharp declines last year, housing starts have, again, rebounded somewhat this year.

Of course, mortgage rates have risen sharply in the last few weeks. So, even if our rationale is off the mark, our expectations of further declines may turn out to be right due to 7%+ mortgage rates. As yet, though, this is merely a forecast. The current realities are that both starts and sales of new homes were on the rise through July.
One interesting related fact is that new-home sales prices seem to have softened in July. The Census Bureau announced increases of +1.1% and +4.8% in average and median prices, respectively, for new homes in July, but those gains are actually smaller than what is usually observed in July. Thus, after seasonal adjustment, we estimate declines of -1.4% and -0.3% in average and median prices, respectively. The path of new-home sales prices has been rocky recently, even after seasonal adjustment. However, these price measures have been on the decline since mid-2022, with average prices down -9.2% over the last 14 months and median prices down -8.7%.
These new-home price declines likely explain some of the new-home sales gains seen this year. However, it remains to be seen, first, whether homebuilders will be willing to raise output further while cutting prices and second, whether homebuyers will continue to purchase homes even with discounted prices when mortgage rates are above 7%.