Real estate is in a slump.
New home sales in the United States fell sharply in May, dropping to their lowest levels since October. According to the Commerce Department, purchases of newly built single-family homes declined by 13.7% compared to April, reaching a seasonally adjusted annual rate of 623,000. This represents the largest monthly decrease since 2021 and signals that high mortgage rates continue to strain affordability for many potential buyers.
The housing market remains under pressure as mortgage rates hover near 7%, reducing the purchasing power of households despite efforts by builders to offer incentives. The Federal Reserve has maintained steady interest rates, citing concerns about future inflation due to tariffs. This decision, combined with elevated financing costs, has further limited buyers’ access to affordable loans, making it harder for many to enter the housing market.
Meanwhile, inventory levels have increased. The number of new homes for sale rose to 481,000 in May—the highest since 2007—resulting in nearly 10 months of supply at the current pace of sales. Builders are also completing more homes, with 119,000 finished and ready for sale, a level not seen since 2008. While the median new home price rose slightly, regional differences and weakening demand have led some builders to reduce prices or delay projects.
The South, the country’s largest market for new home sales, saw a 21% drop, the sharpest monthly decline in more than a decade. Sales also declined in the Midwest and West, while the Northeast posted a modest gain. Although new home sales make up a smaller portion of total housing activity, they are a critical economic indicator with broader implications for industries such as construction, manufacturing, and retail.
Despite the overall downturn, the government noted that housing data can fluctuate and comes with a margin of uncertainty. Nonetheless, builder confidence has decreased, and many companies are adjusting strategies in response to weakening demand. With affordability still a challenge and borrowing costs remaining high, economists anticipate that the housing market will continue to face headwinds in the coming months.
