New-home sales plunge to a 7-month low as buyers struggle with high prices. Expect more weakness in the months ahead.

Sales of new homes plunged in May as buyers continued to stay away from the market, even as builders threw discounts and deals at them.

Sales of newly built homes could remain depressed as buyers continue to deal with the same affordability conditions as they have seen in the last few years. Home prices remain high and mortgage rates are still at 7%, making homeownership a tough proposition for many.

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New-home sales in the U.S. plunged by 13.7% in May, to the lowest level since October 2024. Sales fell the most in the South, followed by the Midwest.

The overall drop in new-home sales was larger than economists surveyed by Dow Jones Newswires and the Wall Street Journal had expected.

The median sales price of a newly built home was up 3.7% to $426,600 in May.

Economists said to expect further weakness ahead.

“The May pace of home sales, combining new and existing sales, was the softest to date in 2025. And I expect further weakness to come,” Stephen Stanley, chief economist at Santander U.S., wrote in a note. “Mortgage rates have risen, and households are less upbeat about the economic outlook, both of which are likely to eat into housing demand.”

In a note, analysts at Raymond James wrote: “We should expect home prices to show some weakness going forward, as we expect the housing market to weaken during the rest of the year under the pressure of still-high mortgage interest rates.”

Related: Housing starts plummet to 5-year low. That could be a good thing for home buyers.

Builders have begun to pull back on new construction because of the depressed demand. In May, housing starts, a measure of the pace of new construction, fell to a five-year low as builders felt less confident about their ability to sell those homes.

They’re also throwing incentives at buyers and slashing prices to move inventory. In June, 37% of builders said they have cut home prices, with an average price reduction of 5%.

The incentives have paid off for some builders. In its second-quarter earnings report, Lennar LEN reported that its price-cut and incentive strategy helped boost sales.

Read more: Lennar sees home prices drop to 5-year lows, but they’re still too high

But the months ahead could be even more challenging for builders, with potential impact from the Trump administration’s tariffs and immigration raids. Immigrant labor is a big part of the construction industry’s workforce, and the push to deport undocumented workers could affect builders’ ability to deliver new homes, as Construction Dive reported recently. The National Association of Home Builders, meanwhile, previously estimated that tariffs could add an additional $10,900 to the cost of a home.

Related: Why more big companies like Sherwin-Williams are talking about immigration on their earnings calls

“Somebody who’s building has to factor those costs in, and on a long-term basis has to raise their costs,” Jeff Lichtenstein, founder of Echo Fine Properties, a real-estate company in Florida, told MarketWatch. “Right now, builders are giving away all sorts of deals on things” to move already built homes.

In May, there were about 507,000 new homes for sale, which was the highest level since 2007, Stanley said.

But moving forward, new homes may be more expensive due to tariffs and high construction costs, Lichtenstein noted.

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