New-home sales crater, magnified by struggles in the South

New-home sales in May have validated the old adage that what goes up must come down.

According to the monthly report from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD), sales of newly built single-family homes in May came in at a seasonally adjusted annual rate of 623,000.

That’s down 6.3% year over year and 13.7% below the pace in April, representing the largest monthly decline since May 2022. But April’s number was the highest new-home sales print in roughly three years.

At the same time, inventory is skyrocketing, with homes for sale hitting a seasonally adjusted annual rate of 507,000 — 8.1% higher than a year ago. The combination of slow new-home sales and rising supply brought the months of supply to 9.8, a whopping 15.3% higher than in May 2024 and up 18.1% month over month.

The hobbling housing market has been propped up slightly in recent months by new-home sales. But May’s numbers reflect increasing anxiety among builders about the state of the market, the direction of mortgage rates and uncertainty around federal trade policy.

“The drivers behind builders’ increased pessimism are multi-faceted,” First American deputy chief economist Odeta Kushi said in a statement. “Elevated mortgage rates impact buyer affordability and result in higher financing costs for builders, who are already grappling with higher construction input costs.

“While the cost of some materials such as lumber have come down from pandemic-era highs, other construction inputs remain elevated.”

The drop in sales is largely driven by the South, where sales plummeted to a seasonally adjusted annual rate of 349,000. That’s down 21% from April and 15.5% year over year, marking the slowest pace for the region since September 2022.

Other recent reports reinforce trouble in the new-home sector. Construction permits and starts in May hit five-year lows, and builder confidence in June hit its lowest mark since December 2022.

Existing-home sales aren’t performing much better, with sales in May 2025 registering their lowest figure for that month since 2009.