Originally Posted 03 September 2025 – Chart to Watch: All eyes on homebuilder inventory shift
New home inventory has hit recession-level highs, but builders are responding. See how falling construction starts could pave the way for inventory relief and market stabilization.
Source: U.S. Census Bureau. U.S. Department of Housing and Urban Development via FRED. Shaded areas indicate U.S. recessions.
Past performance is not indicative of future results
Key takeaways:
- Homebuilders have cut housing starts by -14% since February as the monthly housing supply reached over nine months, approaching recession-level inventory buildup.
- Reduced housing starts typically precede inventory normalization, creating early-cycle investment opportunities as homebuilder stocks have potential to outperform before fundamentals visibly improve.
- We’re monitoring homebuilder fundamentals and housing sector trends for confirmation that inventory moderation is taking hold and a potential cycle recovery is sustainable.
Homebuilder stocks have rebounded and outperformed the S&P 500® Index by roughly 11% over the last three months following a period of underperformance dating back to September 2024.1
What’s driving investor optimism? We’re finally seeing builders react to extreme supply levels. The monthly supply of new houses in the U.S. (black line, left axis) has been trending higher since early 2024 and sitting above nine months since May. This level approaches what we typically see during recessions. New home inventory has jumped as existing home inventory and sales have fallen, with affordability hitting 30-year lows.
Housing starts (orange line, right axis), meanwhile, have declined -14% since February. Why does this matter? Fewer starts are a precursor to inventory moderation. Historically, we’ve seen housing starts decline in reaction to increases in monthly supply, particularly during economic downturns (shaded area indicates U.S. recessions). A gradual pullback in starts should help relieve supply pressure, assuming demand continues at a decent pace.
We’ve also seen mortgage rates ease to a 10-month low of 6.56%. This should help from a demand dynamic, but likely continue to hold back existing home supply as current mortgage holders have rates averaging around 4%. Rates may need to fall to around 5% to meaningfully unlock existing supply, which should allow homebuilders to continue to compete unencumbered by significant increases in existing home inventory.
Historically, we’ve observed an inverse correlation between peaks in new home inventory and when homebuilders typically begin to outperform. This early cycle behavior suggests builders may be entering a new growth phase, though this outlook needs confirmation through improving fundamentals. This dynamic extends beyond homebuilders to related industries like home improvement and furniture, where high mortgage rates and affordability constraints have pressured big-ticket purchases.
Disclosure: Janus Henderson
The opinions and views expressed are as of the date published and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.
Disclosure: Interactive Brokers Third Party
Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.
This material is from Janus Henderson and is being posted with its permission. The views expressed in this material are solely those of the author and/or Janus Henderson and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Disclosure: ETFs
Any discussion or mention of an ETF is not to be construed as recommendation, promotion or solicitation. All investors should review and consider associated investment risks, charges and expenses of the investment company or fund prior to investing. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Join The Conversation
If you have a general question, it may already be covered in our FAQs page. go to: IBKR Ireland FAQs or IBKR U.K. FAQs. If you have an account-specific question or concern, please reach out to Client Services: IBKR Ireland or IBKR U.K..
Visit IBKR U.K. Open an IBKR U.K. Account