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Research
宏观昨天 · Morgan Stanley

U.S. New Home Sales Remain Weak with Elevated Inventory Overhang

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Housing’s Deadlock: Sales Flatline While Inventories Overshoot

Core Conclusion

The April new home sales print of 622k (saar) confirms a market that has adjusted to depressed clearance volumes, not one stabilizing for recovery. The 6.2% sequential decline extends a two-year pattern: demand has converged with natural turnover rates, but supply has not. The result is 9.4 months of inventory—a level that historically forces price concessions and construction retrenchment. The macro spillover is already measurable: we now track 2Q residential investment growth at 0.6% q/q saar, down from 1.0% pre-release. This is a drag on GDP that will not reverse without a sales catalyst that is currently absent.

What the Market May Be Misreading

The fixation on a positive y/y median price (+2.2%) masks genuine price weakness in the broader market. Average transaction prices fell 1.1% y/y. This divergence points to compositional effects: lower-priced, likely entry-level inventory is moving, while higher-tier units stagnate. The market is not firming—it is bifurcating downward. The structural overhang of 9.4 months’ supply implies builder pricing power will continue to erode, even if headline median figures appear resilient. Consensus residential investment forecasts that do not price a further deceleration in 2H26 are likely too optimistic.

Evidence Chain

1. Sales volume has found a floor, but not a springboard. New home sales fell 6.2% m/m to 622k in April, anchored near the bottom of the range prevailing since mid-2024. This level approximates the underlying replacement demand from natural household formation. The signal is not that demand is collapsing further; it is that demand has reset lower, and there is no impulse to lift it. Mortgage rate stickiness and labor income uncertainty cap any near-term recovery.

2. The inventory overhang is severe. Months’ supply reached 9.4 in April, well above the 6-month equilibrium threshold. This is a consequence of sales volumes falling faster than starts, which have remained rangebound without fresh deterioration. The adjustment in starts has not yet occurred because builders are drawing down a backlog; but forward-looking, the incentive to initiate new projects is diminishing rapidly. We cannot expect starts to inflect upward before sales do.

3. Residential investment is becoming a net drag on 2Q GDP. Our tracking estimate for 2Q residential investment growth slips to 0.6% q/q saar. In a quarter where overall GDP is already running below potential, housing’s contribution is turning negative at the margin. The channel runs through construction activity, broker commissions, and related capital goods—none of which rebound with sales stuck at current levels.

4. Price dispersion confirms underlying softness. A 2.2% y/y increase in median price alongside a 1.1% decline in average price is a reliable indicator of mix-shift and concentrated weakness at higher price points. Builders are offering concessions on larger, aspirational units to clear standing inventory, while lower-tier product finds a bid. The aggregate price environment is weaker than the headline median suggests.

Key Risks

  • Mortgage rate persistence. If the 30-year rate remains above 6.5%, the affordability-driven floor on sales could crack further.
  • Labor market transmission. Any significant softening in employment and wage growth would directly suppress purchase applications, even at current inventory levels.
  • Builder margin compression. Price concessions and elevated incentives erode profitability, threatening future land acquisition and speculative construction starts.
  • Reflexivity risk in inventory. Prolonged supply overhang can become self-reinforcing: price declines breed hesitation among both buyers and lenders, further freezing volumes.

Valuation and Transaction Implications

This configuration—weak housing, softening investment, moderate price deflation at the top end—reinforces the case for a Federal Reserve pause. The housing channel is a primary transmission mechanism for restrictive policy, and its clear impairment reduces the urgency for further tightening. Consequently, rate-sensitive exposures benefit: duration in Treasuries, gold, and growth-equity sectors should outperform near term.

Conversely, homebuilders and the building materials complex face a more difficult path to earnings growth. The combination of elevated inventory and declining average prices signals that pricing power has shifted to the buyer, compressing margins. We would avoid exposure to pure-play residential construction until either months’ supply returns below 7 or sales volumes register two consecutive months above 680k.