Implications:  New home sales posted a small decline in July but came in better than expected due to upward revisions for June, though the summer buying season continues to be underwhelming. Looking at the big picture, buyers purchased 652,000 homes at an annual rate and sales have fallen year-over-year for seven months in a row. Moreover, the July pace remains well below the highs of the pandemic, and sales today are roughly where they were pre-pandemic in 2019.  It’s clear the housing market continues to face challenges. The biggest (and most obvious) is affordability. However, there has recently been progress on this front. First, financing costs have been trending modestly lower, with the average 30-yr fixed mortgage rate now around 6.6%. Meanwhile, prices are declining for new builds. Median sales prices are down 12.3% from the peak in October 2022 and have fallen 5.9% in the past year.  The Census Bureau reports that from Q3 2022 to Q2 2025 (the most recent data available) the median square footage for new single-family homes built fell 6.8%. So, while part of the drop in median prices is due to smaller/lower-cost homes, there has also been a drop in the price per square foot.  This is partially the result of developers offering incentives to buyers in order to move inventory. Supply has also put more downward pressure on median prices for new homes than existing homes.  The supply of completed single-family homes is up 290% versus the bottom in 2022 and is currently at the highest level since 2009. This contrasts with the market for existing homes which continues to struggle with convincing current homeowners to give up the low fixed-rate mortgages they locked-in during the pandemic to list their homes. While the future cost of financing remains a question, lower priced options and an abundance of inventories should give a modest boost to new home sales in 2025.

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