Homebuilders are slashing prices at the highest rate in 3 years

Introduction to Homebuilder Confidence

A construction worker carries a sheet of OSB sheathing as he builds a roof on a residential home in Irvine, California, U.S., March 28, 2025. The nation’s homebuilders continue to see weakening demand from potential buyers concerned about the broader economy. As a result, they are cutting prices at the highest rate in three years, according to the monthly builder confidence survey from the National Association of Home Builders.

Current State of Builder Confidence

Builder confidence in July rose 1 point to 33 on the NAHB index, a slight improvement. Still, anything below 50 is considered negative sentiment. The index stood at 41 last July, and it has been in negative territory now for 15 straight months. The slight boost this month came from the recently passed budget act, which provided some tax relief for households, home builders, and small businesses. Mortgage rates, however, have been hovering in the same narrow, elevated level for several months.

Factors Affecting Builder Confidence

"While this new law should provide economic momentum after a disappointing spring, the housing sector has weakened in 2025 due to poor affordability conditions, particularly from elevated interest rates," said Buddy Hughes, NAHB chairman and a builder from Lexington, North Carolina. That’s why 38% of builders said they cut prices in July, the highest share since the NAHB began tracking the metric in 2022. Just 29% were cutting back in April. The average price reduction was 5% in July, where it has been every month since November.

Impact of Price Cuts on Builders

Builders have been buying down mortgage rates to help get buyers in the door, which has cut into their margins some, but not as much as price cuts. "Should the public builders supplement mortgage rate buydowns with more outright price reductions they would likely experience a larger negative gross margin and EPS drag as they would be unlikely able to offset the margin drag with increased volumes and SG&A leverage," said Jonathan Woloshin, real estate and lodging analyst with UBS.

Regional Builder Sentiment

Of the index’s three components, current sales conditions rose 1 point to 36 and sales expectations in the next six months increased 3 points to 43. Buyer traffic saw a 1 point drop to 20, which is the lowest reading since the end of 2022. Regionally, builder sentiment was strongest in the Northeast where it rose 2 points, flat in the Midwest and dropped further in the South and West, where it was weakest.

Housing Market Outlook

"Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges," said Robert Dietz, chief economist at the NAHB. "Single-family permits are down 6% on a year-to-date basis and builder traffic in the HMI is at a more than two-year low."

Conclusion

The homebuilding industry is facing significant challenges due to weak demand and high mortgage rates. As a result, builders are cutting prices to attract buyers, which is affecting their profit margins. The outlook for the housing market remains uncertain, with single-family housing starts expected to decline in 2025.

FAQs

Q: What is the current state of builder confidence in the US?
A: Builder confidence in July rose 1 point to 33 on the NAHB index, which is still considered negative sentiment.
Q: Why are builders cutting prices?
A: Builders are cutting prices due to weak demand from potential buyers concerned about the broader economy and high mortgage rates.
Q: What is the average price reduction for new homes?
A: The average price reduction was 5% in July, where it has been every month since November.
Q: How will price cuts affect builders’ profit margins?
A: Price cuts will likely result in a larger negative gross margin and EPS drag for builders, as they would be unlikely to offset the margin drag with increased volumes and SG&A leverage.
Q: What is the outlook for the housing market in 2025?
A: Single-family housing starts are expected to decline in 2025 due to ongoing housing affordability challenges.