A delayed release of new home sales in December showed a slight increase in 2025 from a year earlier, but average sales prices for new homes fell due to a challenging homebuilding market weighed down by cost cuts, increased incentives and a slower-than-expected pace of sales.
“New home sales ended 2025 on a mixed but resilient note, indicating stable underlying demand despite continued affordability and supply constraints,” wrote Danushka Nanayakkara-Skillington, assistant vice president for forecasting and analytics at the National Association of Home Builders. “The latest data released today (and delayed due to the government shutdown in fall 2025) indicates that while monthly activity shows a small decline, sales remain stronger than a year ago, indicating that buyer interest in new construction homes has increased.”
According to the US Census Bureau‘S New home sales New home sales in December totaled a seasonally adjusted 745,000, down 1.7% month-over-month from November but up 3.8% year-over-year, according to the report released Friday. However, the average sales price of new homes sold in December fell 2.0% year over year, from $423,000 to $414,000.
Sales volume grew 30% in the Midwest, and increased more modestly in the Northeast (12.1%) and the West (1.8%). The South experienced a 1.2% decline in sales activity, but the region still accounted for nearly 6 in 10 new homes sold nationally.
The South is the fastest-growing region in the country, but homebuilders in the Sun Belt are working through an oversupply of new homes after ramping up speculative construction in the years following the COVID pandemic.
To sell that excess inventory, builders across the country, but especially in the South and West, became increasingly aggressive. They offered price reductions and incentives to move specialty homes that depreciate in value the longer they sit unsold.
According to data released this week by the NAHB, 65% of builders nationwide took advantage of sales incentives this month, and 36% cut prices, with price cuts averaging 6%.
New home sales may have increased last year, but… First American Deputy Chief Economist Odeta Kushi noted that “incentives are doing some of the heavy lifting” as builders try to sell their excess spec inventory.
Builders have processed some of this excess supply, but there is still more work to be done.
“The rebound in new home sales has helped reduce builder inventory. Monthly supply fell to the lowest level since summer 2023. Still, supply remains high by historical standards. At the current sales pace, there are 7.6 months of new homes available – well above the 5.5-month average seen from 2015 to 2019. Builders are moving their products, but inventory pressure has not fully subsided,” Kushi said in a statement.
At the end of 2025, there were 128,000 completed, ready-to-live homes available for sale on a non-seasonally adjusted basis, an increase of 8.5% compared to a year earlier.
“Completed homes accounted for just over a quarter of the total inventory, while homes under construction accounted for 51%,” NAHB’s Nanayakkara-Skillington noted. “The remaining 22% of homes sold in December had not yet started construction at the time the purchase contract was signed,”
Builders have also responded to this oversupply of new homes by pulling back on new construction, as the number of new construction homes fell 7.3% nationally last year. However, the decline was stronger in the South (8.3%) and the West (10.7%). Meanwhile, the Northeast and Midwest remained relatively unchanged.
The moderation in mortgage rates may also have contributed to an increase in sales activity late last year. The average 30-year mortgage rate was about 6.6% at the beginning of 2025, but gradually fell by about 500 basis points by the end of the year.
However, lower mortgage rates only go so far when affordability is limited and weak consumer confidence.
In 2025, homebuilders often faced a difficult decision: prioritize strong sales, which came with higher incentives and lower margins, or scale back volume and market share to maintain profitability.
Homebuilders may not expect a major shift in demand in 2026, but many in the industry are cautiously optimistic and believe the worst may be over. There is pent-up demand in the market – the real question is: when will it finally be released?
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