It suddenly looks like there are too many homes for sale. Here's why that's not quite right

But the supply of newly built homes appears to be way too high.The housing market is just beginning to come out of its leanest few years in history. Inventory of both new and existing homes is finally rising, but there is something suddenly strange in the numbers: The supply of newly built homes appears to be way too high.

Now supply is finally beginning to climb back, but the gains are mostly in the new home market, not on the existing side. In fact, there is now a nine-month supply of newly built homes for sale, nearly three times that of existing homes. New and old home months' supply usually track pretty closely. New construction now makes up 30% of total inventory, about twice its historical share, according to the NAHB.

That all came crashing down quickly, resulting in one of the worst foreclosure crises since the Great Depression and causing the ensuing Great Recession. Single-family housing starts plummeted from a high of 1.7 million units in 2005 to just 430,000 in 2011. By 2012, new homes made up just 6% of the total for-sale supply and, even by 2020, housing starts had yet to recover to their historical average of about 1.1 million units. They sat at 990,000.

Resale listings improved slightly this spring, as mortgage rates fell back slightly, and by June, active listings were 16.5% higher than they were the year before, according to Redfin. Some of that increased supply, however, was due to listings sitting on the market longer. For example, there is just a 2.7-month supply of homes for sale between $100,000 and $250,000, but supply is up 19% from a year ago. Meanwhile, there is a 4.2-month supply of homes priced upward of $1 million, but supply is up just 5% from a year ago.

"Also, markets that are relatively more affordable, such as those in the Midwest, have seen healthy price growth this spring."

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