In May, the sale of new homes in the U.S. dropped more than analysts had anticipated, largely due to rising mortgage rates and an influx of unsold properties on the market.
According to the Commerce Department’s Census Bureau, new home sales fell by 13.7%, adjusting the annual rate to 623,000 units. This is a significant decrease from April’s sales figures, which were revised down from 743,000 to 722,000 units.
Interestingly, economists polled by Reuters had anticipated a more modest decrease to around 693,000 units. It’s worth noting that new home sales are prone to fluctuations and regular revisions.
Year-over-year, sales also decreased by 6.3% in May.
On the inventory side, the number of unsold homes increased slightly from 500,000 in April to 507,000.
Rising mortgage rates, which follow the uptick in U.S. Treasury yields, reflect growing economic uncertainty. This situation has been exacerbated by tariffs imposed by President Trump, leading the Federal Reserve to put a pause on lowering interest rates.
Jerome Powell, the Chairman of the Federal Reserve, mentioned to lawmakers recently that the impact of import duties could start pushing inflation up by summer, urging caution against resuming rate cuts.
Last week, the Fed set its benchmark interest rates between 4.25% and 4.50%—the first adjustment since December.
Data from Freddie Mac highlighted that the average rate for a popular 30-year fixed mortgage remained just below 7% in May.
Furthermore, government statistics indicated that permits for future single-family homes reached their lowest level in two years in May. This decline comes as builders grapple with excess inventory and rising costs associated with materials like steel and aluminum.
A recent survey from the National Association of Home Builders revealed that builder sentiment has plunged to its 2.5-year low in June. The survey also indicated an uptick in builders who opted to cut prices in an effort to manage their inventory, with expectations of decreased construction of single-family homes this year.
Economists believe that housing investments—covering both construction and sales—may see a resurgence in the second quarter, following a slight decline in the first quarter of the year.
