Elevated interest rates and economic uncertainty sent more home buyers to the sidelines in May as housing affordability conditions remain challenging.

Sales of newly built single-family homes declined 13.7% in May, falling back to a seasonally adjusted annual rate of 623,000 according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This was the slowest pace since October of last year, as mortgage rates averaged 6.83% in May. Sales were particularly slow in the South, with the pace of sales down 21% in May.

The slowing of the housing market has occurred despite the growing use of of builder sales incentives, including 37% of home builders reporting cutting prices in the June NAHB/Wells Fargo Housing Market Index survey.

On a year-to-date basis, new home sales are 3.2% lower thus far in 2025. As a result of slowing home sales conditions, inventory continues to rise, marking an elevated 9.8 months’ supply in May.

As estimated by NAHB, total months’ supply, defined as a combination of current new and resale single-family inventory, now stands at 5.2. This is the highest sales-adjusted inventory level since 2015 and will place downward pressure on housing construction starts in the months ahead.

A new home sale occurs when a sales contract is signed, or a deposit is accepted. The home can be in any stage of construction: not yet started, under construction or completed. In addition to adjusting for seasonal effects, the May reading of 623,000 units is the number of homes that would sell if this pace continued for the next 12 months.

New single-family home inventory continued to rise with 507,000 residences marketed for sale as of May. This is 1.4% higher than the previous month and 8.1% higher than a year ago. At the current sales pace, the months’ supply for new homes stands at 9.8 compared to 8.5 a year ago. Completed, ready-to-occupy new home inventory stood at 115,000 in May, up 29% compared to a year ago on a non-seasonally adjusted basis. However, this measure was higher at the end of 2024.

The median new home sale price in May was $426,600, compared to $414,300 a year ago. This measure reflects the fact that higher income borrowers face fewer budget constraints than lower income prospective home buyers. New home sales priced below $500,000 were down 15% in May of 2025 compared to the May 2024.

Regionally, on a year-to-date basis, new home sales are down 20.7% in the Northeast, 11.9% in the Midwest and 1.8% in the South. Sales are up 2.1% in the West.