‘Resilient’ new homes segment takes a hit as sales fall
May data shows new home sales fell 7.3% month-over-month and 6.8% year-over-year as affordability concerns and economic uncertainty weighed on consumers.
While existing homes showed signs of increased sales activity last month, the same cannot be said for newly constructed dwellings.
New home sales fall, prices rise: Sales of new homes for May came in at a seasonally adjusted annual rate of 580,000, according to the U.S. Census Bureau. That's down 7.3% compared to April and down 6.8% from May 2025, when the rate was at 622,000. Last month's new home sales were also well below the median forecast pace of 632,000.
May's slowdown pushed new home inventory up to 10.3 months, 10.8% higher than April. It also led to a rise in sales price — not because of stronger demand, but because builders are relying on higher-dollar transactions, according to Joel Berner, senior economist at Realtor.com. The median sales price for a new home climbed to $424,900 in May, according to Census Bureau data, up 2% from April.
"The new home market is firmly in buyer's market territory and moving even further that way," Berner said.
Housing market 'caught' between competing forces: May's sluggish sales pace adds to an increasingly bleak picture for new homes, with housing starts recently dropping 15.4% month-over-month and builder sentiment continuing to hold below 40 on the National Association of Home Builders' monthly survey — a trend that began 14 months ago.
"Taken together, the May new-home sales report and June builder sentiment survey suggest that the housing market remains caught between strong underlying demand and near-term affordability constraints," said Odeta Kushi, deputy chief economist at First American.
"Demographic tailwinds and years of underbuilding continue to support the need for housing," Kushi added, "but elevated mortgage rates and economic uncertainty remain significant obstacles to turning that demand into home purchases."
The latest data reflects a significant turnaround for the industry, which had shown solid new home sales and sluggish existing sales for the past year, Kushi added. While pending sales for existing homes were up 4.8% year-over-year in May, it's unclear whether that trend will be sustainable.
May's new home sales pace "also fell below the average level recorded during the five years preceding the pandemic," Kushi noted, adding that this indicates "that even the housing market's more resilient segment is slowing."
Late-year improvement possible: The market has likely hit the bottom for new home sales, according to Oxford Economics Lead Economist Nancy Vanden Houten, who doesn't think that the latest data is a sign of more sustained decline.
"We expect sales to improve later in the year based on our forecast for mortgage rates to move lower, although that improvement may be delayed by a more hawkish Fed," Vanden Houten said, referring to the Federal Reserve's concerns over inflation.