In the last few months in my articles for HousingWire, I have written that monthly supply has been rising and that this increasing supply was the most critical metric for the housing market, specifically the new home sales market.
According to the recent Census report, the three-month average is now at 5.53 months, which puts inventory right back into the range we had in the previous expansion.
Rule of thumb always with a three-month average:
— 4.3 months and below is a good market for the builders
— 4.4 to 6.4 months is an ok market for the builders; they will build as long as new home sales are growing
— 6.5 months and above, the builders will pull back on construction
Remember, having models keeps you in line and check with the data and the new live variables. This was a significant factor in the America is Back recovery model written April 7, 2020, which the NBER has now declared when the recession ended.
From Census: For Sale Inventory and Months’ Supply: The seasonally‐adjusted estimate of new houses for sale at the end of June was 353,000. This represents a supply of 6.3 months in the housing market at the current sales rate.