In May, the sales of newly built single-family homes in the United States dropped by 13.7% compared to the previous month, marking the largest decline in nearly three years. This decrease was primarily attributed to the fact that the sales incentives offered by builders failed to alleviate the affordability issues faced by potential homebuyers.
According to data released by the U.S. Census Bureau on Wednesday, the seasonally adjusted annual rate of new home sales last month was 623,000 units, the lowest level in seven months and below the general expectations of economists. Dow Jones & Company had previously estimated that new home sales in May would reach 695,000 units.
Comparing with the same period last year, the total sales volume decreased by 6.3%, significantly below the six-month average of 671,000 units and the one-year average of 676,000 units.
These latest figures highlight the pressure faced by housing builders due to increasing inventory amidst escalating economic challenges. These challenges include mortgage rates remaining around 7%, rising material costs due to tariffs, and a slowdown in the labor market. Although builders are offering subsidies to reduce buyers’ financing costs, the effectiveness of these incentives is diminishing, leading many builders to slow down new home construction.
Heather Long, Chief Economist at Navy Federal Credit Union, remarked, “Spring and summer this year have become very challenging for the real estate market, as buyers are staying on the sidelines due to uncertainty and high mortgage rates.”
The report on new home sales on Wednesday also indicated a slight increase in the number of new homes for sale in May, estimated at 507,000 units, a 1.4% increase from April, reaching the highest level since 2007. At the current sales pace, this equates to a 9.8-month supply. The inventory of completed homes for sale rose to 119,000 units, reaching a nearly 16-year high.
Bradley Saunders, an economist at Capital Economics, stated, “The significant drop in new home sales in May offsets all positive trends from the past few months and reminds us that buyer activity can only rise to this extent with mortgage rates near 7%.”
The report released by the U.S. Census Bureau also revealed that the median sales price of new homes in May was $426,600, reflecting a 3% increase from the same period last year.
Prior to the release of new home sales data, the National Association of Realtors (NAR) in the United States announced on Monday that existing home sales unexpectedly rose in May, marking the first increase in three months but still remaining near historic lows.