January saw a sharp decline in new house sales as consumers retreated due to stubbornly high mortgage rates and housing prices. For the hottest subsector of the real estate market, the decline may herald a challenging spring home-buying season.
January saw a 10.5% decline in U.S. new home sales, the first negative reading of the year. It was the slowest pace of new house sales since October 2024.
The decline exceeded the expectations of economists polled by the Wall Street Journal and Dow Jones Newswires. The harsh winter weather, which discouraged many purchasers from touring houses, was another reason given by economists for the significant decline in new-home sales.
However, the drop in new house sales also follows builders’ pessimistic outlook for new home sales earlier this month, and the data as a whole points to a difficult future for the industry.
Builders are more gloomy about their capacity to sell newly built homes in the upcoming six months due to concerns about construction costs brought on by tariffs and possible immigration reform.
The decline in builders’ confidence represents a significant reset in expectations. Up until now, new home development and sales have been seen as the brightest areas of the U.S. housing market in the present cycle of housing unaffordability, when there are too few available homes to satisfy demand from homebuyers.
Because of a continuous inventory crisis, real estate brokers witnessed sales of existing homes drop to the lowest level in 30 years in 2024. As a result, builders increased the number of homes available to purchasers in specific locations.
According to Hannah Jones, a senior economic research analyst at Realtor.com, “the new home sector has served as a relief valve for the housing market over the last few years,” she told MarketWatch. (Move Inc., a subsidiary of News Corp., operates Realtor.com; Dow Jones, the publisher of MarketWatch, is also a News Corp. subsidiary.)
However, builders’ advantage in the housing market may be eroding as more pre-owned homes enter the market and buyer demand continues to be sluggish. The National Association of Realtors reports that the overall inventory of resale homes increased 17% in January compared to the same month last year.
Currently, builders have a lot of inventory. In January, there were more completed homes for sale than there had been since August 2009, following the Great Recession.
The hefty cost of new homes has caused some buyers to back off. The median sales price of a new house in January was $446,300, and builders have mostly refrained from lowering their prices. Since the median transaction price in January was approximately $396,900, according to the NAR, purchasing a resale house is comparatively less expensive from the buyer’s point of view.
According to a note from Oliver Allen, a senior U.S. economist with Pantheon Macroeconomics, large inventory levels may cause new-home prices to decline. “The glut of unsold new homes had been pushing down prices,” he said. He added that they “expect further slight declines in new-home prices over the next few quarters.”
However, high mortgage rates continue to be a problem for many purchasers. According to an estimate by real estate company Redfin (RDFN), a buyer who budgets $3,000 per month for housing expenses can afford a $446,000 home with a 30-year mortgage rate of 6.9%. The brokerage pointed out that the buyer’s budget drops to $439,900 if rates go to 7.1%.
Take it with a grain of salt, as new-home sales data can be erratic, said Daniel Vielhaber, a Nationwide economist, in a statement.
“Although the decline in total sales was substantial, there is too little information in this one month of data to indicate that the market for new homes has shifted to a lower gear,” he stated.
Finally, new homes on the market should continue to boost the housing market.
“New construction will continue to be vitally important to regaining balance in the housing market,” Jones of Realtor.com stated, “but may be less dominant than in years past as existing inventory continues to pick up.”
