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the US housing market has been facing a record inventory crisis over the last 4 years but the situation is changing rapidly there is also a ton of false information about the US housing market and the level of inventory so in this video we're going to uncover the true inventory situation across the entire US housing market we're going to examine the differences between the existing Home Market and the new Home Market show the best inventory measure to follow and highlight what it says now and then outline what this means for the US housing market and broader US economy going forward in order to get the most accurate reading on the US housing market inventory situation we need to consider both supply and demand Supply in this case is the level of inventory for sale and demand is the current pace of sales volume if we start with sales volume we can see the existing Home Market has a sales pace of roughly 3.7 million homes per year while the new Home Market has a sales pace of 600 19,000 homes per year right off the bat we can see how the existing Home Market is almost six times larger than the new construction market in terms of sales volume both of these markets existing and new have seen a huge reduction in sales volume or buyer demand since interest rates have increased as affordability is Out Of Reach for most people if we take this annual sales pace and divide it by 12 we can get an idea of the average sales Pace per month of course there are seasonal patterns but if we normalize for those effects we can see that the current monthly sales Pace in the existing Home Market is roughly 309,000 and the new construction Market is selling about 51,000 homes per month at the peak of the housing boom during the pandemic the existing Home Market had a sales pace of 500,000 units per month and the new construction Market was selling nearly 990,000 units per month now that we have an idea of the current level of demand we have to look at Supply or the level of inventory for sale in the existing Home Market there are currently 1.1 million homes for sale one of the lowest on record if we just look at inventory alone in the new construction Market there are 479,000 units for sale one of the highest levels on record only surpassed by the housing bubble of 2007 you can clearly see how there is Nuance to the situation of US housing inventory the best measure of US housing inventory takes into account both supply and demand and is called the month supply in other words how many months of inventory are available for the current pace of sales volume if we take the current level of inventory for both the existing Home Market and the new home market and we divide it by the current monthly pace of sales we can see how many months it would take to sell all the inventory at the current pace of sales in the existing Home Market that month supply figure or the inventory level divided by the sales volume is 3.7 in the new construction Market it is 9.3 generally speaking the 5.5 to 6.0 level is considered a balanc market where there is no significant upward or downward pressure on prices when the month's Supply level is below 5.5 that means there is very little inventory available for today's market conditions and prices generally rise on the flip side a high level of month supply means there's too much inventory and prices Must Fall the existing Home Market has a month supply of 3.7 which is very low but it's been increasing since the absolute historic level of 1.6 in January 2022 never in the history of the US housing market has the month supply of existing homes been that low this created a very unhealthy situation in the existing Home Market the inventory situation in the existing Home Market is still very tight but it's now at the highest level since before the pandemic the new construction Market is a completely different ball game with a month supply at 9.3 super high and way above the balanced 6.0 level there is way more detail to the situation in the new construction Market that we'll uncover in just a moment if we look at the total US housing market situation both existing and new construction the aggregate month supply figure has increased to 4.5 so yes the total inventory situation is still very tight on a national level but the level is rising and at the highest point since 2015 the monthly numbers are volatile so let's look at a yearly average to make things more clear this shows the month's supply for the total US housing market by year 2024 is a partial year and the current level as of May 2024 is also noted in the chart as of May 2024 the total month supply situation is 4.5 which it hasn't been since 2015 you can also see the four years where the total month supply was below 4.0 which is extremely tight and you can also see the 2021 situation at 2.6 which was crazy unhealthy one major point is that this current 4.5 level is the national average but as we know real estate is very Regional so this means that there are some markets that are near a month supply of six and feeling downward price pressure while some markets are still down at three and seeing prices rise with multiple offers the new home market with a month supply of 9.3 is way above the balance level of 6.0 and there are price cuts and discounts in that market in June the National Association of home builders reported that 29% of Builders cut home prices with an average price reduction of 6% and 61% of Builders use sales incentives like mortgage rate buy Downs to boost sales but we need to talk about the new home market and the 9.3 month Supply level in a bit more detail because there is more than what meets the eye in the new construction Market currently there are 479,000 units for sale in the new construction market and a current pace of sales of about 50,000 per month in the new Home Market a home could be listed for sale when it's completed under construction or not yet started if we look at the percentage of inventory that is completed we can see that of those 479,000 new home units for sale only 20 % are completed which means 80% are either under construction or not yet started the level of completed new home Inventory for sale fell below 10% during the most acute part of the US housing shortage normally in between 20% and 30% of new construction inventory is completed during really bad downturns like 2008 Builders were sitting on almost 50% completed inventory which is what led to dramatic price cuts and big layoffs of construction crew the level of completed inventory is now back into the normal range at 20% and it's rising which means that if we move towards 30% price Cuts will get more intense and construction Crews will be at high risk of job losses if we take the current 50,000 new home sales pace and divide that by the amount of completed new home Inventory for sale we can see that there's currently about 1.9 months of completed inventory for sale which is getting past the average level and into the range consist consistent with recessions and job losses for construction Crews if the home builders have a lot of completed new home Inventory for sale they aren't going to apply for new building permits and build even more homes and that's exactly what we're starting to see building permits for new homes fell dramatically since the start of 2022 but then rebounded as home builders hoped for lower interest rates and more buyer demand as interest rates remained elevated and buyer demand never rebounded the amount of completed invent Builders have is rising and new building permits are declining again as a result so the true inventory situation in the US housing market is still one of tight or low inventory on the surface but it's changing quickly total month supply is up to 4.5 which is the highest level since 2015 and since real estate is regional some markets are starting to feel price pressures the new Home Market is having a larger share of their active inventory completed which means price cuts and disc accounts will get larger unless there's a huge pickup in buyer demand and they're also going to stop adding new building permits and potentially start laying off construction Crews