New home sales lost ground at the end of 2025

February 20, 2026

New home sales slumped 1.7% in December after November sales spiked to the highest level in nearly four years; these purchases are recorded when the contract is signed, so they reflect recent activity. Data for both months were released together due to the backlogs from the government shutdown. Sales ended the year 3.8% higher than the previous year, but well below the peak of over one million units sold at the height of the pandemic housing boom.

Sales gained the most in the Midwest and West. The South, the largest housing market by volume, dropped 6.7% in the month.

The median sales price rose to $414,400 in December after falling slightly below $400,000 in November. The share of newly built homes selling below $400,000 was 47% in 2025, above the 45% share hit in 2024. That is a reflection of the discounts builders have been offering to lure buyers.

According to the National Association of Home Builders, 40% of builders reported cutting prices in December. The average price reduction was 5%, slightly below the 6% in November. The use of sales incentives climbed to 67% in December, the highest percentage in the post-Covid period. This is pressuring builder margins, which have narrowed due to the rising costs of labor, land and materials.

Separately, existing home sales, which are recorded at the closing and are a more lagged indicator for housing, rose 4.4% in December after slightly dropping in November. All regions posted stronger sales to end the year, with the South leading the pack. Unfortunately, the momentum was short-lived as sales plunged 8.4% in January to the lowest level in 16 months; severe winter weather across much of the country was partly to blame.

Mortgage rates ended the year hovering above 6.15% thanks to the narrowing spread between the mortgage rate and the 10-Year Treasury yield. Bond yields have been rising due to increased geopolitical and fiscal uncertainty. If the spread remained above 200 basis points, mortgage rates would be closer to 6.5% to start the year.

Lower rates may coax a few buyers off the sidelines, but the bigger story is refinancing. For the first time in this cycle, more borrowers are sitting on mortgages above 6% than below 3%, so even modest rate relief disproportionately benefits existing homeowners.