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ew home sales plummeted 13.7% in May, pushing the supply of new homes to nearly 10 months as builders face stiff competition from the resale market. The seasonally adjusted annual rate of 623,000 is a significant drop from last year's pace of 665,000. This slowdown comes despite incentives like interest rate buydowns and price cuts on new homes.

    Economic uncertainty and elevated mortgage rates are driving the decline in sales, according to Robert Dietz, chief economist at the National Association of Home Builders. "The slowing of the housing market has occurred despite the growing use of builder sales incentives," he noted. Materials costs are also rising, with some costs increasing due to tariffs.

    Builders may be forced to pass these costs onto buyers if tariffs remain in place, exacerbating affordability issues. The median price of a new home sold in May was $426,600, 3.7% higher than April and 3% higher than last year. To stay competitive, builders will need to rely on incentives like mortgage rate buydowns, design upgrades, and flexible pricing.

    A growing supply of existing homes is also putting pressure on builders. Existing-home inventory has risen to 4.6 months, making it a more attractive option for buyers. Builders are responding by cutting prices – 37% did so in June, the highest share on record. To stay ahead, they will need to focus on offering competitive incentives and pricing strategies.