The U.S. housing market just took its biggest hit in new home sales since 2022

The U.S. housing market just took its biggest hit in new home sales since 2022 — dropping 13.7% in a single month. Demand has stalled out, and we're now looking at 57,000 unsold new homes sitting on the market. That’s the highest inventory level since October 2007 — right before the last crash.

If you're a buyer, seller, or investor trying to make sense of today’s real estate market, the data paints a picture that most people aren’t seeing — yet. We pulled numbers from the Commerce Department, U.S. Census Bureau, Freddie Mac, major builder earnings, and multiple research sources. Together, they show a market under serious pressure.

In May 2025, new home sales dropped to a seasonally adjusted annual rate of 623,000 units. That’s a long fall from the pandemic highs of over a million. We’ve lost more than half of our demand — and the trend is still heading down. More concerning, there’s now 9.8 months of new home inventory — nearly double what’s considered healthy.

And it’s not just about inventory. Affordability is getting crushed.

As of June 26, Freddie Mac reported the average 30-year fixed mortgage rate hit 6.77%. That’s almost triple what we saw during the 2021 low. For buyers, that means the monthly mortgage payment on a $400,000 home today is about $1,100 higher than it would’ve been just a few years ago. That’s over $13,000 more a year — and it’s pricing out massive swaths of the market.

Big builders are feeling it too. D.R. Horton — the country’s largest builder — missed earnings expectations, lowered guidance, and said they expect to deliver fewer homes in 2025 than previously forecast. Their stock fell nearly 8% in one day, and the ripple effect hit Lennar and PulteGroup as well.

Builders are now throwing massive incentives on the table to move inventory. Lennar is offering $47,000 per house nationally, and even more in key markets — $51K in Texas, $81K in Florida. That’s over 10% off just to make the sale.

Housing starts and building permits are falling sharply too. Multifamily starts dropped 29.7% in a single month, and permits have declined for two straight months. The pipeline for future inventory is drying up — and builders are pulling back.

Regionally, the pain is being felt most in places that boomed during the pandemic.

Tampa saw prices drop 4.5% year-over-year, and 25% in the downtown core. Inventory is sitting longer, and sellers are slashing prices to compete.
Austin reported a 22.5% drop in new home sales with days on market now over 11 weeks.
Denver’s inventory exploded nearly 65% year-over-year, with home prices falling 4.1% annually — and for 15 straight months. Even worse, net household growth in Denver has turned negative.
Phoenix now ranks second-worst in the nation, with sales down 10.1% and nearly 60% of homes selling below asking.
Builder sentiment is tanking too. NAHB data shows builder confidence at a 2.5-year low, and 37% of builders are now cutting prices — the highest level since 2022.

Now, here’s what separates this market from 2008: lending standards are still solid. According to the St. Louis Fed, the average credit score for new borrowers is 772. Foreclosures are still historically low. This isn’t a subprime crash — it’s an affordability freeze.

Roughly 83% of homeowners are locked into mortgage rates below 6%, and they’re not eager to sell. That “rate lock-in” effect is choking resale inventory. At the same time, construction costs are through the roof. According to NAHB, they now make up 64.4% of a home’s price — the highest ever recorded. Labor shortages, rising wages, and tightening credit are making it even harder to bring affordable housing to market.

Banks are pulling back too. The Fed’s latest loan officer survey shows tighter credit standards across the board. Combine that with doubled payments and sticky prices, and you’ve got a housing market that just doesn’t work for most Americans.

Yes, Freddie Mac still estimates a housing shortage of 3.7 million units. That long-term gap will likely create serious pent-up demand — but that demand is frozen until something gives: either rates fall, prices drop, or incomes surge. None of those seem imminent.

Consumer sentiment reflects the standoff. Only 20% of buyers think it’s a good time to purchase. And 78% are waiting for rates to drop below 5.5%. Until that happens, very little will move.

If you’re a homeowner with a sub-6% mortgage, you’re sitting on a valuable asset — but it can feel like a golden cage. Want to sell or move up? You're likely facing a mortgage that’s thousands more per year. So you stay put.

Markets like Denver, Tampa, Austin, and Phoenix may offer windows of opportunity for well-capitalized investors or cash buyers. But calling the bottom takes patience. Real estate cycles tend to play out over 7 to 10 years — and we’re only about three years into this one.

What we’re seeing now is a full-scale market reset. It’s not a temporary correction — it’s a structural shift. We’re colliding normalized interest rates with historically high home prices. Until one of those changes, expect this dysfunction to persist.

Whether you're buying, selling, investing, or advising clients, you need to operate with real data and long-term perspective — not wishful thinking.

At KW Default Solutions, we specialize in helping agents, investors, and institutions navigate complex markets like this. If you need strategic insight or execution support, we’re here to help.