Key Points:

• The existing-home share of total sales fell to the lowest level since 2005.
  
  
• The price of the median new home is lower than the price of a median existing home.
  
  
• While the new-home market has outperformed the existing-home market, headwinds may slow the momentum.
  
  

Existing-home sales transactions continue to languish, around the 4 million seasonally adjusted annualized level. But existing homes, while comprising the largest share of the market, represent only part of the overall picture. New-home sales—typically a smaller slice of the total home sales pie—have been a relative bright spot, buoyed by homebuilders’ ability to offer incentives and adjust pricing in real time. The result is a housing market moving at two speeds: one stalled by the mortgage rate lock-in effect, the other fueled by flexibility. Consider the divergence in performance relative to April 2019, existing-home sales are 25 percent lower, while new-home sales are nearly 6 percent higher. Still, both segments face common headwinds, from elevated interest rates to affordability challenges, and the gap between them may narrow as existing inventory continues to rise. 

“The housing market is moving at two speeds: one stalled by the mortgage rate lock-in effect, the other fueled by flexibility.”

If You Can’t Find or Afford an Existing Home, Buy a New One

From 1991 through early 2020, just before the pandemic hit, existing-home sales made up about 88 percent of all home sales. But in the latest April data, that share had dropped to 84 percent, its lowest level since 2005. The decline reflects both the relative weakness of the existing-home market and the elevated share of new homes in today’s sales mix. In a market where existing homeowners are hesitant to sell, new construction has ramped up to fill some of the gap.

With many homeowners locked into ultra-low mortgage rates, the resale market remains constrained. Builders, by contrast, don’t face the same inertia. Larger public builders, in particular, can deploy tools that most individual sellers lack – mortgage rate buydowns, design upgrades, and flexible pricing. These incentives have helped buyers offset affordability challenges in a high-rate environment and have helped drive new-home sales even as resale activity has stagnated.

While new homes have historically come with a price premium, that gap has disappeared. In April, the median price of an existing home nationally was $414,000, which actually exceeded the price of a median new home by approximately $7,000. At April’s average 30-year fixed mortgage rate of 6.7 percent, that translates to a monthly principal and interest payment of roughly $2,140 for the existing home and $2,108 for the new home, or just $2,000 if the builder buys down the rate by 50 basis points. Builders are also addressing affordability constraints by constructing smaller homes at lower price points, targeted to first-time buyers.

But Headwinds Exist…

The new-home market isn’t without headwinds of its own. Indeed, builder sentiment in June reached its lowest level in 13 years, excluding April 2020 and December 2022. Elevated mortgage rates affect both markets, and homebuilders are also contending with higher construction input costs. While the cost of some materials, such as lumber, have come down from pandemic-era highs, other construction inputs remain elevated. In May, overall residential construction input prices were up more than 40 percent compared to pre-pandemic levels. Recent tariff actions threaten to push costs even higher — potentially adding another $10,900 per home. If these tariffs remain in place, builders may be forced to pass costs onto buyers, compounding affordability issues. Moreover, existing-home inventory is rising in key markets like Florida and Texas, increasing competition to new homes. While the overall U.S. market remains structurally undersupplied, the local competitive landscape is shifting, and builders will have to differentiate beyond price.

Will the Markets Converge?

All told, it’s been a challenging housing market. Elevated mortgage rates, high prices, and macroeconomic uncertainty continue to weigh on both new and existing sales. But new construction has proven more resilient, thanks to its ability to adapt quickly and fill a supply gap left by a rate locked-in homeowner base. Still, this advantage may narrow. If mortgage rates fall later this year and consumers gain confidence in the economic outlook, the resale market could rebound from low levels. Existing homes still make up more than 70 percent of total inventory, and as the lock-in effect continues to ease, even modest movement from existing owners could shift the balance. For now, new construction remains the relative outperformer, but in a more stable rate environment, the tale of two housing markets may start to converge.

May 2025 Existing-Home Sales Outlook Highlights

For the month of May, First American updated its Existing-Home Sales Outlook Report to show that:

• Existing-home sales for May are expected to decrease 0.6 percent from last month’s pace of sales, and decrease 2.1 percent compared with the pace of sales a year ago.
  
  
• The largest contributors to the projected monthly decrease in existing-home sales are slower household formation (-0.2 percent), lower house-buying power (-0.05 percentage points), and tightening credit conditions (-0.05 percentage points).

Methodology

Our Existing-Home Sales Outlook Report ‘nowcasts’ existing-home sales, which include single-family homes, townhomes, condominiums, and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales, U.S. demographic trends, house-buying power, and the prevailing financial and economic conditions, as well as momentum, a weight assigned to past values. Please note that the Existing-Home Sales Outlook Report is based on assumptions about demographic, economic and financial conditions. Actual values may differ from those projected. Recent existing-home sales estimates are subject to revision to reflect the most up-to-date information available on the economy, housing market and financial conditions.