New home sales fell sharply in May, dropping 7.3% from April to a seasonally adjusted annual rate of 580,000 units, according to the latest U.S. Census and HUD report. The pullback underscores how elevated borrowing costs and sticky inflation continue to test the upper limits of what buyers can afford.
The decline was broad-based, with the South and West recording the steepest slowdowns. Builders in high-growth Sun Belt markets, which had been a bright spot, reported slower traffic and more cancellations. The Northeast and Midwest saw more moderate retreats, though demand remained tepid across all regions.
Mortgage rates hovered near 7% during the survey period, compounding the impact of still-high home prices. For the typical buyer, the combination has pushed the monthly payment on a median-priced new home well above $2,500, pricing out a growing share of households.
Inventory of new homes for sale edged up to a 9.2-month supply at the current sales pace, the highest level since the pandemic-era boom faded. That overhang is giving buyers more negotiating leverage, with more builders offering price cuts or mortgage rate buydowns, though traffic remains subdued.
Economists caution that if mortgage rates remain elevated through the summer, further softening is likely. However, a potential rate cut later this year could spur a rebound, provided inflation continues to moderate.