Bad news, home buyers: New construction sinks to a 6-year low. Here's what it means for you.

By Jeffry Bartash

Discounts and deals may dwindle, but just not yet

While fewer homes are being built, experts are cautiously optimistic about the number of permits for future home construction.

Construction of new homes in the U.S. plunged in May to the lowest level since the 2020 pandemic, possibly making a tough market for home buyers even tougher.

Builders appear to be slowing down construction because their stockpile of unsold homes has risen to abnormally high levels. Sales of new single-family homes fell at the start of the year to a four-year low and they haven't risen much since then.

Builders had hoped to capitalize on a busy spring buying season to whittle down inventories, but it was disappointing.

The Iran war raised already-high mortgage rates to 6.5%, forced the Federal Reserve to shun further interest-rate cuts, and caused general uncertainty among buyers and builders.

As a result, the number of new single-family homes that remain unsold stands close to a 19-year high of just under 500,000.

At the current sales rate, it would take 9.4 months to sell all the unsold new homes in the country. Typically it would take five or six months in a vibrant housing market.

Builders want to avoid getting stuck with the ongoing costs of maintaining too many unsold homes, but what's good for them is bad for buyers.

How come? By cutting back on new construction, builders might gain more leverage over buyers when negotiating home prices.

Not only will buyers encounter limited selection in parts of the country, they could see fewer discounts and perhaps even higher prices the longer they wait to buy.

Whatever the case, an ailing housing market is not going to get well anytime soon. Mortgage rates are just too high.

A 30-year fixed mortgage skyrocketed to as high as 7.8% in 2023 from as low as 2.8% in 2021 , according to Freddie Mac data. Even now, the 30-year fixed rate is stuck near 6.5%.

The only bright spot tied to surging mortgage rates was a halt to rapid price increases in new homes as the U.S. economy recovered from the pandemic. Home prices even fell slightly from 2022 to 2025.

That wasn't enough to drum up demand. Builders responded to slower sales by offering more incentives to lure price-conscious buyers.

Deals are still in the offing for the time being, though, since many builders are trying to get unsold homes off their books. Some 35% of builders offered discounts in May, according to the National Association of Home Builders.

"Homebuilders continue to offer incentives to buyers to clear some of that inventory," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics.

Still, the lack of new construction could pose a big problem in the long run. The country needs many more single-family homes not only to meet pent-up demand, but to make housing more affordable. The lack of supply keeps prices on the high side.

Some Wall Street DJIA SPX economists contend relief is on the way.

If the Iran conflict ends and oil prices subside to pre-war levels, mortgage rates are likely to drop below 6% again and the Fed might even reconsider future interest-rate cuts.

The number of permits for future home construction seems to underscore this cautious optimism. They barely fell in May, and are still higher now than they were any time from 2007 to 2019.

"The fact that permits are running significantly higher than starts suggests that construction activity should pick up later this year," said Thomas Simons, chief U.S. economist at Jefferies.

-Jeffry Bartash

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06-16-26 1516ET