Sinking New-home Sales Deliver Another Blow To Builders

Homebuilders that are facing numerous policy headwinds haven’t had a great start to 2025, and the January new-home sales report doesn’t help.

According to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD), new-home sales in January came in at a seasonally adjusted annual rate of 657,000, a 10.5% drop compared to December and 1.1% below the level of January 2024.

“New home sales will continue to struggle with fewer homes coming to market due to tepid buying activity,” CoreLogic chief economist Selma Hepp said in a statement. “Even though homebuilders continue to offer buyer incentives, high mortgage rates, mixed with continued price appreciation, keep the eligible pool of homebuyers restricted to higher income individuals.” 

The slow sales are also reflected in inventory numbers. Available homes for sale in January were at a seasonally adjusted annual rate of 657,000, which is more than at any point in 2024. Months of supply hit 9.0, which is higher than any month in 2024 except the 9.2 months in October.

The median sales price was $446,300, also higher than any point last year. The average was $510,000.

The data is more varied regionally. Seasonally adjusted sales in January were up by 6.8% year over year in the South and by 3.1% in the West. But the Northeast — which tends to be volatile — was down by 48.1%, and the Midwest dropped by 13.6%.

The report comes on the heels of news that housing starts and permits also tanked at the start of 2025, suggesting that the pipeline of new homes may be tepid later in the year. But the elevated level of current inventory is a positive sign for the near term.

The existing-home sales market in January fared slightly better, with a 2% year-over-year gain, although sales were down 4.9% compared to December. Existing-home inventory grew substantially by 16.8% year over year.

Homebuilders are facing a period of intense uncertainty as a result of policies being implemented under President Donald Trump. He’s proposed a litany of tariffs on specific building materials, individual countries and every good from every country that imposes a tariff on the U.S.

Particularly impactful are his tariff proposals on lumber and steel. Duties on Mexico and China would apply to hardware products, and China is also a heavy producer of appliances.

Trump’s so-called reciprocal tariffs have the potential to reset pricing on millions of U.S. imports, which would make forecasting in any industry next to impossible. And builders continue to see tepid demand due to stubbornly high mortgage rates.

While tariffs on Canada and Mexico were paused at the beginning of the month, the March 4 deadline for a long-term deal is approaching, and Trump has said these tariffs are set move forward.

The National Association of Home Builders (NAHB) has made some recent pleas to the Trump administration — one for tariff exemptions on building materials and another for reduced regulations. An NAHB study from 2021 concluded that roughly 25% of the cost to build a home is the result of regulation, although most of this is implemented at the state and local levels.

Builders recognize that tariffs could cause headaches. In the most recent NAHB homebuilder sentiment index for February, sentiment dropped five points.

“While builders benefit from a chronic housing shortage made worse by the ‘seller’s strike’ driven by higher mortgage rates, they still face lingering supply-side and affordability challenges,” First American deputy chief economist Odeta Kushi said in a statement.

“Additionally, existing-home inventory has picked up, and as it expands, builders’ relative supply advantage wanes. The share of total inventory made up by new homes remains elevated compared to historic norms, but has leveled out in recent months.”