Buyers are turning away from new homes — unless they’re cheap
New home sales were down 8.2% in July compared to a year ago despite an uptick in builder incentives. But those priced under $300k are selling the fastest.
Builders have plenty of homes to offer buyers — as well as sales incentives not available to the typical homeowner — but those advantages haven't appeared to spur transactions.
Sales of newly built single-family homes were down 0.6% in July compared to June and down 8.2% from a year earlier, according to the U.S. Census Bureau. The seasonally adjusted annual sales rate for new homes has now dropped to 652,000.
A slow summer for new home sales: While last week's existing-home sales report — which found that the pace of existing-home sales surpassed 4 million in July — showed some signs of improvement for the market as a whole, it appears to be coming at the expense of new home sales. In a break from historical trends, new homes are selling for less than existing homes, noted Lisa Sturtevant, chief economist at Bright MLS.
"Despite more inventory to choose from and price advantages, new home sales continue to lag," Sturtevant said.
Incentives aren't doing the job: Two-thirds of builders reported offering sales incentives in August — up from 62% in July, according to the National Association of Home Builders' (NAHB) monthly index. But broader market and economic forces may be holding buyers back, noted First American Deputy Chief Economist Odeta Kushi.
"Builders have relied heavily on incentives, such as mortgage rate buydowns, upgrades, and even price reductions, to support demand and maintain an edge over the existing-home market," Kushi said. "However, the recent pattern of sales — holding at relatively subdued levels — suggests these measures are becoming less effective amid strained affordability, rising resale inventory, and macroeconomic uncertainty."
What this means for inventory: The supply of new homes has now climbed to 9.2 months — up from 7.9 months a year ago.
When combined with existing homes, the country's total housing inventory was at 5.2 months in July, the highest level since 2015, according to the NAHB. This will place downward pressure on housing construction starts in the months ahead, predicted Jing Fu, director of forecasting and analysis at NAHB.
Affordable homes are in demand: New homes at lower price points are selling the best right now, according to Realtor.com Senior Economist Joel Berner. Houses priced under $300,000 accounted for 17% of July's sales, up from 15% in June.
That trend pulled the median price down to $403,800, the lowest level since November.
"The recent tick down in rates may spur on an August revival in buyer activity, but the July peak of the homebuying season proved to be muted," Berner said.
Following the rates: The 30-year fixed-rate mortgage fell to 6.52% late on Aug. 22 after Federal Reserve Chairman Jerome Powell indicated that cuts to short-term interest rates may be coming. That's the lowest level so far in 2025.
Rates climbed back up slightly on Monday to 6.54%, according to Mortgage News Daily.