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Sales of newly constructed homes dropped sharply in May, led by a major downturn in the South as elevated mortgage rates and economic uncertainty weighed on buyer sentiment.
Signed contracts for new single-family homes dropped 13.7% from April to a seasonally adjusted annual pace of 623,000, the U.S. Census Bureau reported on Wednesday. The May figure was down 6.3% from one year ago.
The median sales price of new houses sold in May was $426,600, up 3.7% from April and 3% from a year earlier.
New-home sales declined monthly in every region aside from the Northeast, but the South saw the biggest drop, with sales plunging 21% in the country’s most populous region.
Amid slowing sales, the supply of new-construction homes on the market in the South hit a new record of 311,000, the highest level in records dating to 1973.
Affordability challenges continued to weigh on the housing market, resulting in a historically slow spring housing season.
Mortgage rates averaged 6.82% in May, up from the 6.73% average for the month of April, according to Freddie Mac.
New-home sales have remained weak despite the increasing use of builder sales incentives, with 37% of homebuilders reporting cutting prices in the June National Association of Home Builders/Wells Fargo Housing Market Index survey.
“Housing affordability conditions have pushed more buyers to the sidelines, as reflected in our latest builder survey,” says Buddy Hughes, chairman of the NAHB.
So far in 2025, new-home sales are down 3.2% compared with the same period last year, according to NAHB Chief Economist Robert Dietz.
Amid slowing sales, the supply of new homes on the market has been piling up. At the end of May, there were an estimated 507,000 newly built homes for sale nationwide, up 1.4% from April and 8.1% from a year ago.
At the current sales pace, it represented 9.8 months of supply, the highest in nearly three years.
“Builders will be pulling back on construction in the months ahead due to this level of inventory,” says Dietz.
On a year-to-date basis, single-family construction starts are already down 7.1%, a troubling trend in a market that is suffering under an estimated supply gap of nearly 4 million homes.
However, construction starts on multifamily buildings with at least five units are up 14.5%, as more prospective homebuyers delay their house hunt, increasing demand for rentals.