US New Home Sales Plummet in January Amid High Prices and Rates

The U.S. new home sales market experienced a significant downturn in January, with sales plummeting by 11.3% to an annual rate of 619,000, according to data released by the U.S. Census Bureau. This sharp decline comes as no surprise, given the persistent challenges facing the housing market, including elevated mortgage rates and rising home prices.

Mortgage rates have been hovering around 7% this year, more than double the record low of 2.65% hit in 2021. This significant increase in mortgage rates has made homeownership less affordable for many potential buyers, leading to a decrease in both new and existing home sales. Home prices have also been increasing on an annual basis for the 19th consecutive month, with the national median sales price rising 4.8% in January from a year earlier to $396,900. This combination of high mortgage rates and rising home prices has made it challenging for many would-be homebuyers to afford a new home.

The inventory of new homes for sale has been increasing over the past year, with a significant jump in May 2025. According to data from the U.S. Census Bureau, the supply of new homes for sale rose to 14.8% between April and May, with new home inventory in May reaching the highest level since October 2022. This increase in inventory can have a positive impact on affordability and accessibility for buyers, as it provides more options and potentially reduces competition among buyers. However, it is essential to consider that the overall sales of new homes are down 16.5% compared to the previous year, which may still present challenges for buyers in finding suitable properties.

In addition, home builders are grappling with a record number of units under construction, which may lead them to reduce prices to entice home buyers. This could further improve affordability for buyers, but it is crucial to monitor the market trends and assess the impact of inventory changes on the overall housing market.

Given the current trends in mortgage rates, home prices, and inventory levels, the expectations for the new home sales market in the coming months are that sales will remain sluggish. The average rate on a 30-year mortgage is expected to remain above 6%, making it difficult for many buyers to afford new homes. Rising home prices and limited inventory will also continue to pose challenges for buyers. However, as inventory levels continue to rise, buyers may have more options to choose from, potentially leading to a slight increase in sales. Lawrence Yun, NAR's chief economist, expects there could be 1.5 million homes on the market when the spring homebuying season gets going, but noted the U.S. needs there to be closer to 2 million properties for sale to achieve a balanced market.

In conclusion, the U.S. new home sales market experienced a significant downturn in January, with sales plummeting by 11.3% to an annual rate of 619,000. This decline can be attributed to the persistent challenges facing the housing market, including elevated mortgage rates and rising home prices. While the inventory of new homes for sale has been increasing, it is still at a 3.5-month supply at the current sales pace, which is considered a seller's market. The expectations for the new home sales market in the coming months are that sales will remain sluggish due to high mortgage rates, rising home prices, and limited inventory. However, as inventory levels continue to rise, buyers may have more options to choose from, potentially leading to a slight increase in sales.