US new-home market suffers biggest drop since 2022

June 26, 2025 (MLN): US purchases of new homes fell sharply in May, marking the steepest decline in almost three years, as affordability constraints overshadowed aggressive sales incentives.

According to government data released Wednesday, new single-family home sales dropped 13.7% to a seasonally adjusted annual rate of 623,000 reaching a seven-month low and falling short of all estimates in a Bloomberg survey.

The decline underscores the mounting challenges facing homebuilders, who are grappling with mortgage rates lingering near 7%, higher materials costs driven by tariffs, and a cooling labor market.

Despite offering subsidies to ease buyers’ financing burdens, builders are seeing diminishing returns and are now slowing construction activity.

“This spring and summer are shaping up to be very tough for the real estate market,” said Heather Long, chief economist at Navy Federal Credit Union.

“Buyers are staying on the sidelines as they worry about uncertainty and high mortgage rates.”

Inventory levels also continue to rise, as Bloomberg reported.

The number of new houses for sale in May ticked up to the highest level since 2007, representing 9.8 months of supply at the current sales pace.

Completed homes available for sale climbed to 119,000 an almost 16-year high.

The median sales price increased by 3% year-over-year to $426,600, marking the first annual price gain in 2025.

Limited inventory in the resale market has contributed to sustained price growth since mid-2023.

Regionally, the South America’s largest homebuilding region experienced a 21% plunge in sales, the steepest decline in nearly 12 years.

Sales also fell in the West and Midwest, while the Northeast recorded a modest gain.

With inventories swelling and demand faltering, ground-breaking on single-family homes remained subdued last month.

Economists anticipate residential investment will continue to weigh on the economy in the quarters ahead.

Homebuilder sentiment has also taken a hit.

Confidence has dropped to its lowest point since December 2022.

Meanwhile, rising supply of previously owned homes poses an additional threat to new-home sales, according to Bloomberg Intelligence analyst Drew Reading.

Lennar Corp., one of the nation’s largest builders, has indicated a strategy of maintaining construction volume by accepting smaller profit margins and lower prices to defend its market share.

Though new-home sales are considered a more current indicator than existing home purchases, which are tallied at contract close, the data remain volatile.

The government report showed a 90% confidence interval suggesting that the change in new-home sales could range from a 26.8% drop to just a 0.6% decline.

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