Homebuilders are slashing prices at the highest rate in 3 years
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.
"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 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.
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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.
Of the index's three components, current sales conditions rose 1 point to 36, 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.
"Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges," said Robert Dietz, NAHB's chief economist. "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."
Regionally, builder sentiment was strongest in the Northeast where it rose 1 point, flat in the Midwest and dropped further in the South and West, where it was weakest.
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