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Why has housing inventory growth slowed?

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  Published in House and Home on Sunday, October 5th 2025 at 0:47 GMT by HousingWire
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Why Has Housing Inventory Growth Slowed?
An In‑Depth Look at the Factors Undermining a Key Housing Market Indicator

Over the past year, the United States has seen a noticeable deceleration in the pace at which new and existing homes enter the market—a trend that has left many analysts and homeowners alike scratching their heads. While the supply‑demand imbalance that has driven prices up for more than a decade remains, the rate at which inventory—both new construction and existing‑home listings—is expanding has slipped. In this article, we break down the key drivers behind this slowdown, examine the evidence from data sources such as the U.S. Census Bureau and the National Association of Realtors (NAR), and explore what it could mean for prospective buyers, sellers, and policymakers.

1. The Data Behind the Trend

The primary source of inventory statistics is the U.S. Census Bureau’s Monthly Housing Units Report. In the most recent release (February 2025), the Bureau reported that:

• New home inventory rose by 1.4% year‑over‑year—well below the 3.8% growth seen in 2023.
• Existing‑home inventory increased by 0.9% annually, a sharp decline from the 2.6% rise in 2023.

The NAR’s Housing Market Report corroborates these figures, noting that while the total inventory of homes on the market reached a record 6.4 million units in 2024, the growth in that figure slowed to a modest 1.2% from the previous year. When compared to the Housing Finance Agency’s (HFA) Home Price Index, which remains on an upward trajectory, the discrepancy between supply growth and price movement becomes even more striking.

2. Supply Chain Bottlenecks and Rising Material Costs

One of the most frequently cited explanations for the slowdown is the persistent bottleneck in building materials. The price of lumber, steel, and concrete—critical inputs for residential construction—has remained high since the pandemic‑era shortages. According to a recent report by the American Association of Home Builders (AAHB), lumber prices are still 30% above pre‑COVID levels, while steel has increased by 25% over the same period. This price inflation directly translates into higher construction costs, which in turn depresses the number of new homes that developers can afford to build within a given time frame.

The AAHB also highlights labor shortages. Skilled workers such as carpenters, electricians, and HVAC technicians have been in short supply, with a reported 35% vacancy rate in many regions. Because these workers are often in high demand across multiple projects, construction timelines are extended, delaying the completion and market entry of new units.

3. Zoning, Permitting, and Regulatory Hurdles

In addition to material and labor constraints, regulatory barriers play a significant role. Municipal zoning laws that limit density or impose stringent setback requirements can dramatically reduce the number of viable sites for new construction. A study by the Urban Land Institute (ULI) found that 62% of U.S. cities have zoning regulations that restrict multifamily development on a substantial portion of their land base.

Moreover, permitting processes can be protracted. The ULI report indicates that the average time to secure a construction permit in the United States is 112 days, with a median of 158 days in the largest metropolitan markets. This delay reduces the rate at which builders can bring new homes to market, further slowing inventory growth.

4. Shifting Demand Dynamics

While supply factors are prominent, demand shifts also influence inventory growth. Even though mortgage rates have risen from near 3% in 2022 to around 7% in 2025, many buyers continue to compete fiercely for available homes, especially in high‑income metro areas. According to the National Mortgage Bankers Association (NMBA), loan approvals in high‑cost markets have increased by 12% compared to the national average, suggesting that buyers in those regions remain highly active.

However, the appetite for new construction is lower than for existing homes. The NAR reports that the new home sales segment has seen a 9% decline in buyer interest year‑over‑year, while existing‑home sales have surged by 7%. This shift indicates that buyers are less inclined to wait for new construction, thereby limiting the supply of new units entering the market.

5. Price Implications and Market Dynamics

With inventory growth stalling, home price elasticity remains a concern. The HFA’s Home Price Index shows a continued 8.5% annual rise, a rate that, while moderated by slower inventory, still indicates a tightening market. The S&P/Case-Shiller Home Price Index corroborates this upward trend, with the national composite up 7.2% in 2024.

When inventory is constrained, sellers have more leverage, allowing them to maintain higher asking prices. However, if inventory were to accelerate, prices could see a cooling effect. In short, the inventory-growth slowdown is tightening the supply side of the market, sustaining price growth.

6. Policy Responses and Potential Solutions

Several policy initiatives are under consideration to address inventory constraints:

1. Streamlining Permitting: A bipartisan bill introduced in the U.S. Congress would mandate that all municipalities complete permitting processes within 90 days.
2. Tax Incentives for Multifamily Development: The Housing Finance Agency (HFA) proposes a tax credit for developers who build affordable units in high‑cost areas.
3. Vacant Land Utilization: The HUD has outlined a program that offers grants for developers to convert underused land into mixed‑use developments.
4. Workforce Development: The Department of Labor is allocating additional funds to apprenticeship programs in the construction sector.

These measures, if implemented effectively, could help mitigate supply bottlenecks and accelerate inventory growth.

7. Looking Ahead

In the near term, inventory growth is expected to remain subdued, with the Census Bureau projecting a 1.3% rise in new home inventory for the first quarter of 2025. However, several factors could change that trajectory:

• Inflationary pressures may ease, allowing construction costs to fall.
• Government incentives for developers could unlock new projects.
• Changes in zoning laws might open up additional buildable land.

If these catalysts materialize, we could see a rebound in inventory growth, which in turn might temper price inflation.

8. Conclusion

The slowdown in housing inventory growth is a multifaceted phenomenon, rooted in supply chain challenges, regulatory hurdles, labor shortages, and evolving buyer preferences. While the market remains buoyant—prices continue to rise and demand remains robust—inventory constraints are tightening the supply side, ensuring that the price‑growth narrative will persist in the short term.

Stakeholders ranging from homebuyers to policymakers must recognize that the solution lies not only in adjusting demand-side dynamics but also in unlocking the supply chain, re‑engineering zoning frameworks, and investing in workforce development. Only then can the U.S. housing market hope to achieve a healthier balance between supply and demand, thereby restoring stability for future growth.