Contract signings on new single-family homes increased 0.6% to an annualized rate of 627,000 last month, according to government data released Thursday. That fell short of the 650,000 median estimate in a Bloomberg survey of economists.

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June's results show US homebuilders are struggling to offset an ugly mix of high prices and borrowing costs by offering incentives and subsidizing customers' mortgage rates, which risk eroding profit margins.

This week, Atlanta-based PulteGroup Inc. posted better-than-expected earnings, despite reporting a slowdown in orders. Sales incentives have grown to 8.7% of its houses' gross sale price, more than double a "normal" incentive load, executives said on an earnings call.

"I long for the days of more normal incentive loads of kind of 3% to 3.5%," Chief Executive Officer Ryan Marshall said on the earnings call. "Hopefully as we get out into kind of future years, that will become possible again."

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An industry survey showed 37% of homebuilders reporting cutting prices in June, and climbed even higher in July to a record in monthly data back to 2022. That poll also revealed weak trends in traffic of prospective buyers amid affordability constraints, which similarly restrained sales of previously owned homes last month.

"In line with yesterday's soft existing home sales figure, these numbers underscore that housing demand has downshifted in recent months," Stephen Stanley, chief economist at Santander US Capital Markets, said in a note. "Barring a steep fall in mortgage rates, which seems unlikely, there is little reason to expect a quick revival."

Housing Inventory

Thursday's government report showed the supply of new homes for sale in June increased to 511,000, still the highest level since 2007. In recent months, a growing inventory has caused many builders to pull back on groundbreaking, with new single-family construction falling last month to the lowest level in a year. The supply of completed homes for sale edged up in June to the highest since 2009.

The median sales price of a new home decreased 2.9% from a year ago to $401,800 — marking the fifth annual decline in the last six months. While new-home prices have softened the last couple years, they remain more than 23% higher than the early months of the pandemic.

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Selling prices are "still too much for most Americans to afford as long as mortgage rates stay near 7%," Heather Long, chief economist at Navy Federal Credit Union, said in a note. "The encouraging news is there are more new homes for sale this summer than last year, and prices are inching down a bit. But it will take a lot more relief to see the real estate market unfreeze."

By Region

Sales in the South, the biggest US homebuilding region, increased 5.1% last month after falling 15% a month earlier. Purchases also rose in the Midwest, while contract signings in the West dropped to the slowest pace in seven months.

New-home sales are seen as a more timely measurement than purchases of existing homes, which are calculated when contracts close. However, the data are volatile. The government report showed 90% confidence that the change in new-home sales ranged from a 12.7% decline to a 13.9% gain.

Residential investment is expected to be a drag on overall economic activity, when the government publishes its initial estimate of second-quarter gross domestic product on Wednesday. Also that day, the National Association of Realtors will release a report on June contract signings in the home resale market.