Have lower mortgage rates already boosted the homebuilders?

New home sales followed the existing home sales market by beating sales estimates and having positive revisions in today’s report, which suggests that we are already seeing some benefits of lower mortgage rates.

While it’s not a spectacular number by any means, if mortgage rates can get toward 6% and just stay there for some time, the builders can get more confident about single-family permits again and then maybe housing starts can grow. However, for now, let’s take a look at the report.

New home sales

From Census: Sales of new single-family houses in July 2025 were at a seasonally-adjusted annual rate of 652,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.6 percent (±15.5 percent)* below the June 2025 rate of 656,000, and is 8.2 percent (±14.0 percent)* below the July 2024 rate of 710,000.

Due to the revision of last month’s data, which was adjusted upward, this report shows a slight month-to-month decline in new home sales. However, sales still exceeded estimates, which were predicted around 630,000. The reality of the new home sales market is that we have been operating within a narrow sales range for the past 10 years, especially when excluding the highs and lows caused by COVID-19.  

It’s challenging for both large and small builders to sell homes with mortgage rates hovering at 7% or higher. Larger builders have managed to maintain their profit margins to sustain sales, but smaller builders face greater difficulties in this environment. On the other hand, as mortgage rates approach 6%, even smaller builders feel more optimistic, as historically, their confidence has improved with lower rates.
In real terms, when we look at the new home sales data for 10 years, it’s really just been in a tight range, and once rates rise to 7% and higher, it’s harder to sell homes. When rates go toward 6%, it gets easier.

Completed units for sale Is key

The big publicly traded homebuilder stocks have been on fire recently and people are wondering why, given all the negative headlines about housing starts and supply. The simple answer is that the 10-year yield and mortgage rates heading toward 6% is good enough for them to sell more homes and it has less of an impact on their corporate profits. This isn’t the case for smaller builders, but for the big publicly traded builders it can work.

However, the bigger story is that the builders completed units for sale is at 121,000, which means they’re not going to be issuing a massive amount of permits here.

Why is this particular number so significant? Builders typically do not have more than 120,000 completed units available for sale as they continue constructing new homes. They treat homes as a commodity and cannot allow the inventory of completed units to accumulate. Here’s a different perspective on the stages of completed units, looking back over the decades to strengthen my point.

The builders have 9.2 months of supply, 2.2 months of which are completed units of sale, which is 121,000 units for sale. There is also 4.9 months of supply under construction, which means 267,000 units, which is a high number as well. There is 2.0 months of supply that hasn’t even been started yet — or 111,000 units, a historically all-time high level. So, you can see why the housing starts and permits are at recession levels.

Conclusion

It’s encouraging to see that new home sales have stabilized at the lower end of their range and that mortgage rates have dropped even further. Hopefully, it’s clear by now that new home sales could increase if mortgage rates approach 6% and remain there for a while. If that occurs and builders are able to sell some of their inventory, they will likely feel more confident about moving forward with new construction permits.