Sales of new U.S. single-family homes plunged 13.7% in May—the largest monthly drop since June 2022—as elevated mortgage rates and economic uncertainty sapped buyer demand. The seasonally adjusted annualized sales rate fell to 623,000 units, well below economist forecasts and marking a seven-month low.
At the same time, unsold inventory swelled to 507,000 homes—the highest level since October 2007—driven by rising material costs from tariffs on lumber, steel and aluminum. Builders have responded with incentives and price cuts, but little relief is expected as unstarted projects remain scarce.
Market Overview:- New home sales down 13.7% in May, weakest since mid-2022;
- Inventory of unsold new houses hits 507,000 units, a 16-year high;
- Median new home price rose 3.0% year-on-year to $426,600.
- Tariff-driven material costs constrain groundbreakings;
- South sales plunged 21.0%, while Northeast surged 32.1%;
- Average 30-year mortgage rate near 7%, deterring buyers.
- Residential investment likely to contract in Q2;
- Housing to subtract from GDP after Q1 neutrality;
- Builder sentiment at multi-year lows signals caution.
- Despite the sharp drop in new home sales, the median new home price still rose 3% year-on-year, indicating underlying price stability and ongoing demand in select segments.
- Regional disparities—such as a 32% surge in Northeast sales—highlight pockets of resilience and opportunity for builders and investors in less impacted markets.
- Builders are responding to market headwinds with incentives and price cuts, which may eventually lure buyers back into the market as affordability improves.
- Long-term demographic trends, including strong millennial household formation, continue to support underlying housing demand, even if temporarily suppressed by high rates and economic uncertainty.
- If mortgage rates decline or economic confidence rebounds, pent-up demand could be unlocked, leading to a swift recovery in sales and construction activity.
- Inventory overhang, while high, is concentrated in certain regions and price points, and a rebalancing of supply could set the stage for a healthier market in the medium term.
- New home sales plunged 13.7% in May, marking the largest monthly drop since June 2022 and a seven-month low, reflecting severe buyer hesitancy due to elevated mortgage rates and economic uncertainty.
- Unsold inventory swelled to 507,000 homes—the highest level since October 2007—driven by rising material costs from tariffs and a lack of new project starts, exacerbating the supply overhang.
- Average 30-year mortgage rates near 7% continue to deter buyers, and absent a rapid drop in borrowing costs or significant policy relief, housing is likely to remain a drag on economic growth.
- Builder sentiment is at multi-year lows, signaling caution and likely leading to subdued construction activity for the foreseeable future.
- Tariff-driven material costs constrain groundbreakings and limit builders’ ability to offer meaningful price relief, further dampening demand.
- Residential investment is expected to contract in Q2, and housing is poised to subtract from GDP after Q1 neutrality, compounding broader economic headwinds.
With new-home supply at a near-record pace, Stephen Stanley of Santander expects construction activity to remain subdued through the summer. Citigroup’s Veronica Clark notes that low pipeline starts offer scant support for future building.
Absent a rapid drop in borrowing costs or significant policy relief, housing is poised to debit economic growth amid persistent inventory overhang and rising borrowing expenses.
