Elevated Rates, Challenging Affordability Conditions Put a Damper on New Home Sales

Elevated interest rates and economic uncertainty sent more home buyers to the sidelines in May as housing affordability conditions remain challenging.

Sales of newly built single-family homes declined 13.7% in May, falling back to a seasonally adjusted annual rate of 623,000, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This was the slowest pace since October of last year, as mortgage rates averaged 6.83% in May. Sales were particularly slow in the South, with the pace of sales down 21% in May.

“Housing affordability conditions have pushed more buyers to the sidelines, as reflected in our latest builder survey,” said Buddy Hughes, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Lexington, N.C. “Despite the use of builder sales incentives, including 37% of home builders reporting cutting prices in the recent NAHB survey, the housing market has slowed.”

“On a year-to-date basis, new home sales are 3.2% lower thus far in 2025,” said NAHB Chief Economist Robert Dietz. “As a result of slowing home sales conditions, inventory continues to rise, marking an elevated 9.8 months’ supply in May. Builders will be pulling back on construction in the months ahead due to this level of inventory.”

As estimated by NAHB, total months’ supply, a combination of current new and resale single-family inventory, now stands at 5.2. This is the highest sales-adjusted inventory level since 2015 and Dietz noted this will place downward pressure on housing construction starts in the months ahead.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 623,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory continued to rise with 507,000 residences marketed for sale as of May. This is 1.4% higher than the previous month, and 8.1% higher than a year ago. At the current sales pace, the months’ supply for new homes stands at 9.8 compared to 8.5 a year ago.

The median new home sale price in May was $426,600, compared to $414,300 a year ago. This measure reflects the fact that higher income borrowers face fewer budget constraints than lower income prospective home buyers. New home sales priced below $500,000 were down 15% in May of 2025 compared to the May 2024.

Regionally, on a year-to-date basis, new home sales are down 20.7% in the Northeast, 11.9% in the Midwest and 1.8% in the South. Sales are up 2.1% in the West.