The sharp monthly decline in new home sales in June – the third straight monthly downtick and the first annual decline since the depths of the pandemic – was the latest, and perhaps loudest, indication that supply-side constraints are limiting the market for new home construction. Lumber prices have fallen back from the record highs reached a few months ago, but high and rising prices of other key building materials and limited availability of durable goods including appliances are forcing homebuilders to cap sales, increase prices and delay projects. While overall inventory of new homes for sale improved significantly on the month, the number of for-sale homes that had not yet been started increased to a new all-time high. Annual comparisons will get even more difficult in coming months, as it was this time last year that the market began to surge and reach highs not seen since before the Great Recession. Demand for new homes is expected to remain hot, with many eager home shoppers favoring new construction as an alternative to the ultra-competitive resale sector. This demand should offer support for sales volume for the foreseeable future, buying time for these supply-related constraints to slowly ease and allowing for a return to growth in the months that follow.