Demand for new homes dropped to its lowest level in nearly three years last month, according to the latest data, as builders across the country brace for a significant slowdown in construction in the coming months.
“No one is buying new homes that are under construction or permitted,” Nick Gerli, a real-estate analyst and CEO of Reventure App, wrote on X, formerly Twitter. “Months of supply for both is sitting between 15-20 months, which is basically the highest on record.”
Months of supply refers to the number of months it would take to go through all listings available on the market at the current pace of sales. That means that buyers would go through the current levels of new home inventory in the U.S. market in 15 to 20 months—much longer than what is considered necessary for a balanced market, about six months.
Builders have already taken notice of the growing sluggishness in the new homes market and are losing the motivation to start new projects, as shown by recent data which found that new U.S. residential construction fell to its slowest pace since the outbreak of the COVID-19 pandemic.
Rising Inventory and Tumbling Sales
For years after the subprime mortgage crisis of 2007-2008, the U.S. massively underbuilt compared to demand, leaving the country with a severe lack of supply. This housing shortage, which continues to this day, contributed to the massive surge in prices during the pandemic homebuying frenzy spurred by historically low mortgage rates.
In the last few years, however, construction projects have picked up across the country, especially in states like Florida and Texas, which experienced a boom in demand since the outbreak of the pandemic.
New housing inventory is now at its highest level since late 2007, marking a positive step forward out of the shortage that has characterized the market since the Great Recession.
But sales of new homes are falling, as buyers continue struggling with sky-high prices and elevated mortgage rates. As of June 26, the average 30-year fixed-rate mortgage was 6.77 percent, according to Freddie Mac, nearly three times the lows reported during the pandemic.
In May, new home sales dropped by 13.7 percent compared to a month earlier, to a seasonally adjusted annualized rate of 623,000 units, according to the Commerce Department’s Census Bureau. It was the biggest monthly drop since June 2022 and a much larger than expected decline, even considering that demand in the overall housing market is cooling all across the country. Compared to a year earlier, new home sales were down by 6.3 percent.
“Taken together, increases in inventory and months supply, mirror the trend of softening demand in the existing home sale market,” Realtor.com senior economist Jake Krimmel said in a statement shared with Newsweek. “Whether the new and existing home sale markets continue to move in tandem will be something to watch going forward this summer.”
According to Reventure App data, months of supply for homes permitted, but not started, is “literally the highest level on record,” Gerli said, at 19.4 months, “meaning basically no one right now is willing to enter into a sales contract for a home to be built,” he added. “That says a lot about the current state of demand.”
Homes under construction, by comparison, have a months supply of 14.8 months—the second-highest level on record behind 2008—while completed homes have a rather competitive supply of 3.6 months.
“There were 30,000 new home sales for completed products in May 2025, which was basically close to the highest level on record, meaning builders are able to move the completed inventory,” Gerli said.
“But there’s still a ton of completed inventory hitting the market, because the pipeline of homes under construction is so big,” he added. “Right now, there are 268,000 homes for sale under construction. That’s a 2007-08 level of supply.”
Builders Are Losing Motivation
U.S. builders are wary of the slowdown in demand across the country and the rise in construction material prices caused by President Donald Trump‘s tariffs, and are losing motivation to build new homes.
According to the most recent survey conducted by the National Association of Home Builders (NAHB), sentiment among U.S. homebuilders is now at its lowest level since 2022, as many are forced to cut prices and offer incentives to entice reluctant buyers. The survey found that the share of homebuilders lowering prices in June has climbed to 37 percent—the highest reported by NAHB since 2022.
Negativity is spreading among builders and is reflected in the falling numbers of new home-building permits and homes under constructions.
Housing starts dropped by 9.8 percent to an annualized rate of 1.26 million homes in May, according to the latest government figures. Multifamily starts fell by nearly 30 percent, while new single-family home construction climbed to a 924,000 rate.
The number of building permits issued last month also declined to an annualized rate of 1.39 million, marking a five-year low. Permits for the construction of single-family homes fell to their slowest pace since April 2023.
What Does This Mean for the Housing Market?
Home construction is expected to continue stalling as costs rise for both builders and buyers, meaning that the U.S. will not get out of its housing shortage anytime soon and Americans will continue facing historically high prices.
“Builders face higher financing costs, tariff uncertainty, softer demand from elevated rates, increased competition from rising existing-home inventory in key markets like Texas and Florida, and higher inventories of their own,” Odeta Kushi, deputy chief economist at First American, told Real Estate News. “This mix is weighing on builder sentiment.”
According to Robert Dietz, chief economist at NAHB, “builders will be pulling back on construction in the months ahead” due to the current levels of inventory, he told Realtor.com.
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