Since posting those questions, I've stumbled on the Construction Industry Audit Technique Guide, which states that "[t]he Internal Revenue Code defines inventory as tangible personal property" (on
page 99). I'm not sure where that particular rule is found, but in any case the Guide has plenty of case law support for the position that real estate cannot be inventoried. So, Terry, I think your analysis is on point, except that real estate seems not to be considered inventory at all.
But then there are the other two questions I asked. The DMSH can't be applied to "property that is or is intended to be included in inventory property", and the cost of goods sold calculation makes explicit reference to "inventories". Are we to understand the term "inventory" identically both these instances and as it applies to real estate that can't be "inventoried"? I have a feeling the answer is complex and might involve something that Coddington would refer to as a "through the looking glass" moment.