Why homebuilders aren’t building more homes

Today, the new home sales data perfectly explains why housing permits are near cycle lows and why we can’t get any traction on building more homes in America, as we have been basically stuck in one sales range for 10 years. If I take away the surge in new home sales early in COVID and the lows in 2022, we have been in the same sales range for a very long time. 

Even at this low level new home sales are massively outperforming existing home sales, as sales are at 2019 levels, which would equate to 1 to 1.3 million more existing home sales, but the builders live in a sub-6% world, where existing home sales don’t. With today’s charts, you can see why housing permits are near cycle lows.

New home sales

From Census: New Home Sales: Sales of new single-family houses in June 2026 were at a seasonally-adjusted annual rate of 628,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.6 percent (±14.8 percent)* above the May 2026 rate of 618,000, and is 5.6 percent (±13.2 percent)* below the June 2025 rate of 665,000.

The reality for new home sales is that we are stuck in a channel here: sales grow toward 700,000 and then fade toward 600,000, and back and forth we go for the last 10 years. And it takes us nowhere. If you take the COVID highs in sales and the lows in 2022 away from the data, we are still trending at 2019 levels, as the chart below shows.

The builders have used their profit margins to help buy down rates to keep sales elevated, because without sub-6% mortgage rates, new home sales would be worse today. A huge part of the profit margin story for the builders was the massive price gains they locked in during COVID. They have used those margins to buy down rates, but those profit margins are falling. This is one reason the residential employment data hasn’t cracked as it has in previous cycles.

Small progress on supply

In December of 2024, I wrote about how the builders had a supply and demand problem. While people like to focus on the monthly supply for new home sales, I like to focus on the completed units for sale. History has shown us that over the decades, when this data gets over 120,000, the builders really pull back from construction. As you can see in the chart below, completed units for sale are no longer rising, but the builders have made little progress here.

You can see by the builder confidence indexes that they’re not very excited. It’s very hard to get growth in housing construction when the builders’ confidence and subcomponents of this index are trending this low.

Conclusion

Of course, mortgage rates rose to yearly highs yesterday, which isn’t going to be great for the builders. Higher rates mean they will need to use more of their profit margins to move product and they’ll be even less enthusiastic to build more homes. For now, think of the new home sales market as basically stuck in mud, slowly trying to work down the inventory level and waiting to get more confident about sales growth before they start issuing housing permits.