In Tuesday new home sales report of Census office, the monthly supply hit recent highs at 6.2 months and 5.9 months on the more critical three-month average.
I focus on the monthly supply as the most critical data for the new home market. The new home sales market is a small but essential part of the overall market and the economy. I’ve said for a long time that builders don’t build for the existing home market; they build based on demand for their specific products. When the monthly supply of new homes increases, builders slow down construction to control the flow of product to protect their margins.
According to the census report: The seasonally adjusted estimate of new homes for sale at the end of July was 367,000. This represents a 6.2 month supply at the current sale rate.