Sales of new U.S. homes are tumbling as the supply of unsold units rises, and that combination has created a murky outlook for an industry struggling to rebound from elevated mortgage rates and skeptical buyers.
May new home sales totaled a seasonally adjusted annual rate of 623,000, meaning that many homes would change hands over the next 12 months at this pace, according to a report released Wednesday by the U.S. Census Bureau and the Department of Housing and Urban Development. The rate, the lowest since October, is 13.7% below the April figure and 6.3% below the same month last year.
The seasonally adjusted total of new houses for sale at the end of May hit 507,000, 1.4 percent above the April figure and the highest reading since late 2007. The supply of completed homes for sale has hit a 16-year high.
Given the growing supply, builders are likely to reconsider starting new projects, suggesting a weaker pace of single-family construction, explained Odeta Kushi, deputy chief economist at financial services firm First American.
"Although one month doesn't establish a trend, especially in such a volatile data series, the pullback indicates buyer hesitancy," she said in an email.
The government report comes two days after the National Association of Realtors said last month's existing home sales barely increased after registering the lowest reading for an April since 2009. Last week, Freddie Mac reported mortgage rates remain elevated, and the National Association of Homebuilders said homebuilder confidence sank to levels last seen in late 2022.
'No real upside' ahead
To salvage sales, builders are cutting prices and buying down mortgage rates to make monthly payments more affordable for buyers.
"While builder incentives may prevent a steep decline in new home sales, we see no real upside for sales in the months ahead, given our forecast for mortgage rates to remain elevated and the labor market to soften," said Nancy Vanden Houten, lead U.S. economist at research firm Oxford Economics, in a statement.
The U.S. South typically accounts for a large portion of new home sales, but the May sales reading was down 23% from April and 18% from May 2024, according to the government data.
“Despite the use of builder sales incentives, including 37% of home builders reporting cutting prices in the recent NAHB survey, the housing market has slowed," said Buddy Hughes, chairman of the NAHB, said in a statement.
Meanwhile, the median sales price of new houses sold in March was $426,600, up 3.7% from April and 3% from May 2024. Builder price cuts and the larger supply of units for sale likely will limit price growth in the coming months, according to Oxford's Vanden Houten.
The NAHB defines a new home sale as when a buyer signs a contract or a builder accepts a deposit. The home can be in any stage of construction, from not started to complete.