High interest rates suppress housing demand, US new home sales in May fell to the lowest level this year.

Data released by the US Department of Commerce on Wednesday showed that sales of new single-family homes in May fell for the second consecutive month, dropping to the lowest level of the year. Despite developers attracting buyers with price cuts and home-buying incentives, high mortgage rates and inflationary pressures continued to suppress housing demand. The data showed that new home sales in the United States fell by 7.3% in May on an annualized basis, to 580,000 units, which not only was lower than April levels but also fell below the expectations of all economists surveyed by Bloomberg. In terms of prices, the median sales price of new homes in May was $424,900, a slight increase from the previous month, and essentially unchanged from the same period last year. Since 2023, the overall upward trend in US home prices has slowed down, with developers generally improving housing affordability by introducing smaller homes and actively lowering prices. However, despite these efforts, housing demand has not shown significant improvement. Ben Ayers, senior economist at Nationwide, stated that developers are attracting buyers by lowering prices and offering incentives, but their efforts are limited in the current market environment. "Developers are cutting prices and offering various incentives, but many potential buyers are still waiting," Ayers said. "If mortgage rates remain high for the remainder of 2026, the US housing market activity this summer may continue to be weak." Currently, the 30-year fixed-rate mortgage in the US is around 6.6%, near its nine-month high. Meanwhile, recent inflationary pressures have further weakened the purchasing power and confidence of potential homebuyers. In terms of supply, the inventory of new homes for sale in the US fell by 1.4% year-on-year in May to 496,000 units. However, at the current sales rate, the market inventory still represents an equivalent of 10.3 months of supply, remaining at the highest level since 2009. In response to inventory pressures, residential developers have begun to actively slow down the pace of construction to alleviate the oversupply situation in the market. This includes reducing the construction of "speculative homes," homes started before obtaining purchase contracts. Stuart Paul, economist at Bloomberg Economics Research, stated that compared to the decline in sales, the continuous high inventory is a more significant issue. "We have long been cautious about the outlook for the US real estate market in 2026. While the lower-than-expected sales in May are concerning, the pressure brought about by continued expansion of inventory is worth noting," Paul said. "High inventory and subdued market sentiment are jointly suppressing price performance." By region, the decline in new home sales in May was most pronounced in the western United States. The data showed that sales in the western region fell by 26.9% month-on-month to the lowest level since October of last year; the southern region, as the largest residential construction market in the US, saw sales decline to 350,000 units, nearing the lowest level in the past seven years. In contrast, sales in the Midwest and Northeast regions showed some improvement. Analysts point out that new home sales data is often seen as a more forward-looking indicator of the real estate market, as it measures the number of purchase contracts signed, while existing home sales are only recorded after the transaction is completed. However, this data is subject to monthly fluctuations. The US government stated in the report that from a statistical standpoint, the confidence interval for the change in new home sales in May ranges from a 20.6% decline to a 6% increase. Overall, against the backdrop of high mortgage rates, ongoing inflationary pressures, and elevated inventory levels, the US real estate market continues to face significant pressure in the short term. It is widely expected that the direction of the Federal Reserve's monetary policy and changes in future financing costs will continue to be key factors affecting the prospects of the housing market recovery.