Early-year new home sales ‘very disappointing’
The year began with the slowest new home sales pace since October 2022. But inventory is up and the median price has fallen — both positive signs for buyers.
It's shaping up to be a challenging spring for the home construction industry — but there are some indications that things will improve.
Still, elevated material costs, a sluggish start to 2026 home sales and rising fuel prices are creating strong headwinds for the industry, which plays a key role in residential real estate.
Sharp drop in new home sales: The year began with an ugly start for new home sales, according to U.S. Census Bureau data. Sales in January were at an annual clip of 587,000 — the slowest pace since October 2022 and well below expectations of 722,000 and the January 2025 pace of 662,000.
While intense winter storms early in the year may have played a role, buyers also just "seem to be spooked," according to Joel Berner, senior economist at Realtor.com.
"All told, this is a very disappointing result for new home sales," Berner said.
The good news for home shoppers? The new homes category is now more firmly in buyers market territory, with the median price at $400,500 — 6.8% lower than a year ago and 4.5% below the median price in December.
Inventory was estimated to be 476,000, pushing the supply of new homes to 9.7 months, up from an eighth-month supply in December and a nine-month supply in January 2025.
Single-family home size stabilizing: Meanwhile, the trend of smaller new homes appears to be slowing down, according to an National Association of Home Builders (NAHB) analysis.
Based on fourth quarter 2025 U.S. Census data, the NAHB estimates that the median square footage for a new home was 2,183, unchanged from early 2025.
The median size of a new home peaked at nearly 2,500 square feet in 2015 before falling. That decline steepened in 2022 and 2023 as rising material costs and higher mortgage rates shifted demand toward smaller homes.
"House size trends in 2026 are likely to remain relatively flat, reflecting crosswinds from housing affordability constraints and elevated construction costs," NAHB Chief Economist Robert Dietz wrote in an online post.
Builder sentiment ticks up: The NAHB's Housing Market Index, which measures builder confidence, climbed one point in March to 38. Builders in the Northeast were the most confident with an index score of 44, followed by the Midwest (43), South (35) and West (31).
According to the NAHB, the top concerns among builders are material costs, the existence of fewer buildable lots and labor shortages. While slowly moving in the right direction, the index has remained below 50 for nearly two years.
Material costs still rising: At the moment, the cost of materials used in home construction don't seem poised to fall anytime soon.
The latest Producer Price Index released March 18 by the U.S. Bureau of Labor Statistics showed inflation has been hotter than expected. According to the NAHB, the price of goods used in new residential construction increased 3% year-over-year in February — an uptick mostly tied to building materials, particularly metal products.