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Posted August 8, 2025 in Blog / Education

What New Home Sales Can Tell Us About the Economy — And Why You Should Care

When people talk about the economy, you might hear a lot of numbers and statistics. But there’s one number that’s surprisingly good at predicting where things are headed: new home sales.

This isn’t just about how many houses are being built… It’s about confidence. Buying a new home typically means people feel secure in their jobs, income, and future. When fewer new homes are sold, it can be a sign that the economy is slowing down.

The 20% Rule

Here’s the pattern we’ve seen over the years:

  • If new home sales drop by about 20% compared to the year before, a recession often follows.
  • There have been a few exceptions, like in the mid-1960s during the Vietnam War, or in 2021 when pandemic-related numbers made the data look worse than it was.
  • In 2010, sales dropped sharply because a tax credit ended, but that was part of the bigger housing crash.

Where We Are Now

Right now, new home sales (based on the average from the last three months) are down about 8% compared to last year. That’s not at the 20% danger level yet, but it’s worth keeping an eye on.

In late 2022 and early 2023, we saw a similar slowdown. But low inventory of existing homes and builders offering mortgage incentives kept things moving. This time, there aren’t any big “special circumstances” to help offset the slowdown.

Why This Matters to You

If new home sales keep dropping and reach that 20% mark, it could mean slower economic growth or even a recession.

  • For buyers: If builders slow down on new construction, there could be fewer homes available. That might keep prices higher, even if the economy slows.
  • For sellers: Fewer new builds might mean less competition, but the number of buyers could drop if mortgage rates or job security become concerns.

The Bottom Line

Housing is one of the best early warning signs for the economy. While the current slowdown isn’t a reason to panic, it’s a trend worth watching.

At Fairway Heartland we follow market trends closely so we can guide you in choosing the right time and strategy for your next move. Whether you’re buying, selling, or refinancing, understanding the bigger picture can help you make smarter decisions.