Demand weakens under pressure from high mortgage rates, prompting concerns across the construction and housing sectors.

A "For Rent, For Sale" sign is seen outside of a home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger/ File Photo Purchase Licensing Rights

 

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June 26, 2025 – Washington, D.C.

Sales of newly built single-family homes in the United States fell sharply in May, reflecting continued strain on buyer demand amid persistently high mortgage rates and rising home prices. According to data released by the U.S. Census Bureau, new home sales dropped 11.3% from April to a seasonally adjusted annual rate of 619,000 units, missing analysts’ expectations and marking the largest monthly decline since 2022.

The steep drop highlights the fragile state of the housing market as borrowing costs remain elevated, weighing heavily on affordability.

Inventory Hits Highest Level Since 2007

At the same time, housing supply surged. The number of new homes on the market rose to 507,000 units, the highest level since the housing crisis era in 2007. This equates to a 9.8-month supply, significantly above the 6-month level typically seen as a balanced market.

The rise in inventory suggests builders are struggling to offload completed units. In response, many are offering price reductions, closing cost assistance, and design upgrades to lure hesitant buyers.

Mortgage Rates Remain a Headwind

The downturn is largely attributed to mortgage rates, which have hovered near 7% for 30-year fixed loans throughout 2025. Combined with elevated construction costs and a soft labor market in some regions, the result is a pricing environment out of reach for many would-be homeowners.

“Affordability continues to be the biggest obstacle,” said an analyst at Wells Fargo. “Even with more homes available, buyers are constrained by high monthly payments.”

Regional Variations and Market Signals

The decline in sales was felt across multiple regions, with the South—historically the largest market for new homes—seeing one of the steepest drops. Other regions experienced more modest slowdowns.

While rising inventory could provide opportunities for buyers in the months ahead, it also signals potential pressure on homebuilders. Analysts warn that further declines in demand could weigh on residential investment in the second half of the year.

Permits and Starts Also Show Weakness

The data also revealed a downturn in single-family building permits, an early indicator of future construction activity. Permits fell to their lowest level in nearly two years, reflecting growing caution among builders.

Meanwhile, the pace of housing starts has also slowed, underscoring the broader deceleration in the construction industry despite an ongoing national housing shortage.

Outlook: Slower Growth, Selective Opportunity

While the sharp decline in sales raises concerns, some economists note that rising inventory could help ease price growth later in the year. Additionally, any signal from the Federal Reserve about lowering interest rates could offer some relief to buyers and builders alike.

Until then, the market is likely to remain sluggish.

 

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