U.S. sales of newly built homes dropped sharply in May, falling to their lowest level since October as high mortgage rates continued to strain affordability and sideline prospective buyers.
Purchases of new single-family homes fell 13.7 percent from April to a seasonally adjusted annual rate of 623,000, the Commerce Department said Wednesday. It was the largest monthly decline since the summer of 2021 and came in well below economists’ expectations.
The steep pullback signals persistent weakness in the housing market, where elevated financing costs have eroded purchasing power despite price incentives and mortgage-rate buydowns offered by builders. The average 30-year fixed rate has hovered near 7 percent in recent weeks, limiting what many households can afford and pushing others out of the market altogether.
The Federal Reserve has kept its benchmark interest rate steady since President Donald Trump took office, resisting calls by the president to cut interest rates despite inflation declining to below its two percent target in recent months. Fed chairman Jerome Powell has said that while low inflation would justify continuing the cuts the Fed began last year, while Joe Biden was still president, the central bank is holding off on further cuts because it expects tariffs will push up prices.
Builders are also contending with rising inventories. The number of new homes for sale ticked up in May to 481,000, the highest level since 2007. That translates to 9.8 months of supply at the current sales pace, up from 8.7 months in April. Completed homes for sale reached 119,000—the most since 2008—as construction continues to outpace demand in many markets.
While the median price of a new home rose 3 percent year-over-year to $426,600, pricing pressure remains uneven. Builders in some regions have trimmed prices or delayed new projects, aiming to avoid deeper discounts as inventory builds.
The South, the country’s largest new-home market, saw sales tumble 21 percent—the sharpest monthly drop in nearly 12 years. Sales also declined in the West and Midwest. Only the Northeast recorded an increase.
New-home sales are a leading indicator for the broader housing market and the overall economy. Though a relatively small share of total housing activity, homebuilding is labor- and material-intensive, with ripple effects that touch everything from manufacturing to retail. New homes often generate additional demand for furniture, appliances, and even vehicles.
Still, the data can be volatile. The government reported a wide margin of uncertainty around May’s figure, with a 90% confidence interval ranging from a 26.8 percent decline to a 0.6 percent decline.
The latest figures follow recent reports showing a slowdown in home construction, as builders grow more cautious in the face of softening demand. Builder confidence has fallen to its lowest level since late 2022, and several firms have said they are adjusting pricing and output strategies in response to shifting market conditions.
The housing sector has been one of the most rate-sensitive areas of the economy and remains under pressure as long as borrowing costs stay elevated. With affordability stretched and inventories climbing, economists expect residential investment to remain subdued in the months ahead.
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