As buyers balk at high home prices and mortgage rates that continue to approach 7%, a recent Oxford Economics report predicts more pain ahead. Concerns about the economy and job security mean many would-be new purchasers are opting to make do with modest home improvements instead.

Increased new home sales often indicate strong consumer confidence, greater employment, and accessible financing. Conversely, declines suggest waning buyer interest, affordability issues, or economic stress.

“There’s no question that in many of pockets of the Sun Belt—the epicenter of U.S. single-family homebuilding—buyers have gained a considerable amount of leverage this year and the market has softened,” ResiClub editor-in-chief Lance Lambert told Fortune Intelligence.

“In order to keep sales volumes steady, big homebuilders have compressed margins further and done bigger incentives or outright price cuts. Lennar is spending the equivalent of 13.3% of final sales price on incentive, like mortgage rate buydowns,” Lambert noted, up from 1.5% at the height of the Pandemic Housing Boom in the second quarter of 2022. In normal times, Lambert pointed out, Lennar spends 5% to 6% on buyer sales incentives. (Lennar is ranked no. 129 on the Fortune 500.)

Key points from the report:

New home sales: Sales were at a seasonally adjusted annual rate of 627,000 in June 2025. This is only 0.6% higher than May 2025, but 6.6% lower than June 2024, indicating a notable year-over-year decline in buying activity.Inventory: At the end of June, there were 511,000 new houses for sale, a 1.2% increase from May 2025 and an 8.5% increase from June 2024. This rise in inventory suggests that homes are staying on the market longer.Months’ supply: The supply of homes relative to the sales rate is now at 9.8 months, up from 9.7 months in May 2025 and 8.4 months in June 2024. A higher months’ supply figure generally indicates a slower market with more supply than demand.Prices: The median sales price for new homes in June 2025 was $401,800, which is 4.9% lower than May 2025 and 2.9% lower than June 2024. The average sales price was $501,000, down from the previous month but slightly higher than a year ago. This points to downward pressure on prices, likely due to rising inventory and decreased demand.

What it means:

The combination of dropping sales, rising inventory, and declining prices indicates a market with weaker demand and increased supply.These conditions are often seen when buyers are constrained (e.g., by high mortgage rates or economic uncertainty), or homebuilders have ramped up production in anticipation of higher demand that didn’t fully materialize.The elevated months’ supply metric—at almost 10 months—suggests a buyer’s market, where purchasers have more negotiating power and sellers may need to lower prices to attract buyers.

A new home is defined by the U.S. Census Bureau as a single-family house that is being sold for the first time. Since new home sales are recorded early in the sales process, trends in new home sales can signal coming shifts in the broader housing market, forecasting changes before they appear in existing home sales data.

For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.