2025 new-home sales inched up; concessions weakened prices

A delayed December new-home sales release showed a slight increase in 2025 over a year earlier, but median new-home sales prices decreased, reflecting a challenging homebuilding market weighed down by cost reductions, elevated incentives and a slower-than-expected sales pace. 

“New home sales ended 2025 on a mixed but resilient note, signaling steady underlying demand despite ongoing affordability and supply constraints,” wrote Danushka Nanayakkara-Skillington, Assistant VP for Forecasting and Analysis at the National Association of Home Builders. “The latest data released today (and delayed because of the government shutdown in fall of 2025) indicate that while month-to-month activity shows a small decline, sales remain stronger than a year ago, signaling that buyer interest in newly built homes has improved.”

According to the U.S. Census Bureau’s New Residential Sales report released on Friday, new home sales were at a seasonally-adjusted annual rate of 745,000 in December, a decline of 1.7% month-over-month from November, but a 3.8% year-over-year increase. However, the median sales price of new homes sold in December declined 2.0% year over year, from $423,000 to $414,000.

Sales volume grew 30% in the Midwest, and inched up more modestly in the Northeast (12.1%) and the West (1.8%). The South experienced a 1.2% decline in sales activity, but the region still accounted for nearly 6 out of every 10 new homes sold nationwide.

The South is the nation’s fastest-growing region, but homebuilders across the Sun Belt are working through an oversupply of new houses after ramping up speculative construction in the years following the COVID pandemic.

To sell that excess inventory, builders nationwide, but particularly in the South and West, became increasingly aggressive, offering price cuts and incentives to move spec homes that depreciate in value the longer they sit unsold.

According to data released this week by the NAHB, 65% of builders nationwide used sales incentives this month, and 36% cut prices, with price cuts averaging 6%.

New home sales may have increased last year, but First American Deputy Chief Economist Odeta Kushi noted that “incentives are doing some of the heavy lifting” as builders work to sell through excess spec inventory.

Builders have worked through some of this excess supply, but there is still more work to be done.

“The pickup in new-home sales has helped chip away at builders’ inventory. Months’ supply fell to its lowest level since summer 2023. Still, supply remains elevated by historical standards. At the current sales pace, there are 7.6 months of new homes available — well above the 5.5-month average we saw from 2015 to 2019. Builders are moving product, but inventory pressures haven’t fully eased,” Kushi said in a statement.

By the end of 2025, there were 128,000 completed, ready-to-occupy homes available for sale on a non-seasonally adjusted basis, up 8.5% from a year earlier.

“Completed homes accounted for a little more than a quarter of the total inventory, while homes under construction made up 51%,” NAHB’s Nanayakkara-Skillington noted. “The remaining 22% of homes sold in December had not yet started construction at the time the sales contract was signed,”

Builders have also responded to this excess supply of new homes by pulling back on new construction, as housing starts fell 7.3% nationwide last year. The decline, however, was stronger in the South (8.3%) and the West (10.7%). Meanwhile, the Northeast and Midwest were relatively unchanged.

Moderating mortgage rates may have also contributed to an increase in sales activity at the end of last year. The average 30-year mortgage rate was about 6.6% at the beginning of 2025, but fell gradually by about 500 basis points by the end of the year.

However, lower mortgage rates only go so far amid affordability constraints and weak consumer confidence.

Throughout 2025, homebuilders often faced a tough decision: prioritize strong sales numbers, which came with higher incentives and lower margins, or scale back on volume and market share to preserve profitability.

Homebuilders may not expect a strong demand shift in 2026, but many in the industry are cautiously optimistic and believe the worst may be over. There is some pent-up demand in the market — the real question is, when will it finally be released?