Current Issues in Economics and Finance
Explaining the Gap Between New Home Sales and Inventories
May 2000 Volume 6, Number 6
JEL classification: E32, L74, R31

Author: James A. Kahn

For much of the last four decades, the stock of unsold new homes has tracked sales very closely. Since 1995, however, inventories have fallen far behind rapidly advancing sales. What accounts for the change? Market trends have both reduced the need for inventories and slowed the response of inventories to shifts in demand. At the same time, the long current expansion has strained the resources of the building industry, creating supply shortages and raising costs.

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