New home sales plunged in May

June 25, 2025

New home sales plunged 13.7% in May to the lowest level since October 2024. Sales came in 6.3% lower than a year ago. All regions except the Northeast, the smallest housing market for newly built homes, recorded losses for the month.

Newly built homes available for sale jumped to a 9.8 months supply. The market needs about a six-month supply to be considered balanced between buyers and sellers. The oversupply is coming from the smaller, privately held builders who are unable to provide the types of sales incentives that the larger builders can afford. Margins have already been eroded in the high-interest rate environment. The rising costs of materials and labor are only adding insult to injury. We expect to see consolidation in the industry.

The median sales price of a newly built home moved up to $426,600 in May. Nearly 60% of homes sold were priced over $400,000, a level out of reach for many first-time buyers. Affordability challenges remain acute, with the rising costs of insurance, taxes and mortgage rates hampering sidelined buyers. Mortgage rates peaked around 6.9% by the end of May, constraining the traditional spring home buying season. Since newly built home sales are recorded at the contract signing, they better reflect real-time activity in the housing market compared to existing home sales which are counted when they close.

Existing home sales ticked up by 0.8% in May. Even though mortgage rates dipped slightly in March and April, economic uncertainty started to spike at the start of April and resulted in souring consumer attitudes. Many of those sentiments can be self-fulfilling when it comes to deciding against big-ticket purchase decisions, like buying a house.

Additional pressures on consumer balance sheets stem from student loan repayments, rising auto loan and credit card delinquencies and falling credit scores which are keeping many renters out of the housing market. Many of those who own their homes are locked into a mortgage rate below 5% or have paid their homes off outright. Renters, on the other hand, do not have the same hedge against the rising costs of shelter. About one third of all US households are renters.

Inventory of resale homes ticked up in May to 1.54 million units, a 4.6 months supply. More inventory is coming from larger, more expensive homes than the starter homes most first-time buyers want. Some housing markets are seeing annual price declines because of a lack of buyers, but the trend is not indicative of a larger, national home price correction. Strong demographics and the high immigration rates over the last three years should keep a floor under home prices. Markets that experienced extreme price increases during the pandemic era are the most likely to see prices cool in the near term.