Sales of new, single-family homes were reported today as rising 1.1% in February. However, that slight rise came off a January level that was revised by -5.5% from what was reported a month ago. In other words, the rate of new-home sales announced for February is actually 4.5% lower than the January sales level announced a month ago.
So, we can grouse that today’s news is actually a deterioration from what was reported a month ago. However, we can’t deny that new-home sales look to have stabilized recently after a 33% decline from late-2020 through mid-2022, and recent levels are down only slightly from what we were seeing prior to Covid. The problem now facing homebuilders is that they were woefully late to adjust to the 2020-2022 downtrend in sales and they are facing bulging inventories of unsold new homes.
In the accompanying chart, the scales for new-home sales and single-family starts are adjusted to allow for owner-builds, which show up in housing starts but not in new-home sales. The intention of the chart is that when the blue line lies above the green line, inventories of unsold homes are accumulating, and when the blue line lies below the green line, inventories are depleting.

By this accounting, starts were “above” sales throughout 2021-22, and only in recent months have inventories ceased accumulating. This is exactly in accord with Census data on inventories of unsold homes. These were reported as declining by a scant 3,000 homes (0.7%) in February and remain at 8.4 months’ sales at recent sales rates. This compares to normal inventory-sales ratios of about 4 months’ sales for new homes.
In order to get new-home inventories back to sustainable levels, builders would have to reduce inventories by some 235,000 units. If sales merely hold at recent, stabilized levels, single-family starts are going to have to decline substantially further for this to occur.
We don’t foresee sales bouncing in the near future. While home prices have declined substantially since mid-2022, mortgage rates remain quite elevated relative to pre-Covid levels, real household income has declined over the past year and employment levels are still some five million jobs below pre-Covid trends.
If new-home sales merely hold recent levels, our guess is that single-family starts would have to drop another 25% to bring inventories into line over the next 18 months. This sounds to us like a reasonable (really conservative) projection for homebuilding. Indeed, it would seem to take a sudden and quick, sharp bounce in new-home sales to forestall such a decline, certainly much sharper than the gains registered for recent months, which are smaller than monthly sampling errors and which, again, are much smaller than the downward revisions to previous months’ sales levels.