New home inventory increased by 218,000 units in July – great news for the overall housing market as it deepens and strengthens. The market has not seen such a high month-to-month improvement since March in 2010. Homebuilders continue to put more faith in the housing market by adding more homes to lure in prospective buyers. Although this time the rise in inventory did not lower home prices, steadily increasing inventory should help normalize the market—ideally to a consistent growth rate.
The housing market can take a big step forward by increasing existing home inventory in the future. Previous homeowners buy most new homes. Having more sellers put their homes on the market will then make them eligible buyers in the new home market. Having more buyers in the new home market will help convince builders to build more homes. Building more homes will increase new home inventory, lowering prices and enticing homeowners to upgrade to a new home, once again adding more inventory to the existing home market. This is obviously a simplified look at the housing market, but positive cycles like this can really jump start a recovering market.
As alluded to earlier, home prices did increase by 2% in July, while average price increased by 4.8 percent. Increasing inventories may provide a check to rising values. New home sales rose by 5.4% from June and 25.8% from July of last year. More sales is always good news as it shows the market has become broader and therefore less volatile to external forces.