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Fast Company
7 hours ago
- Business
- Fast Company
Spreading housing market weakness sees $23 billion builder offer $50K incentives per sale
Want more housing market stories from Lance Lambert's ResiClub in your inbox? Subscribe to the ResiClub newsletter. In a 'normal' housing market environment, giant homebuilder PulteGroup —which is worth $23 billion—spends $18,000 to $21,000 on incentives on a $600,000 home sale. But with affordability strained and housing market softness spreading, the homebuilding giant is now shelling out closer to $52,200 per sale of a home of that value. 'Incentives for the second quarter were 8.7% of gross sales price, which is up from 6.3% last year, and on a sequential basis [quarter-over-quarter] up from 8.0%,' Jim Ossowski, CFO of PulteGroup, said during the builder's July 22 earnings call. Ever since mortgage rates spiked in mid-2022, which followed a historic run-up in U.S. home prices during the Pandemic Housing Boom, U.S. housing affordability has been strained. In housing markets where that affordability strain has manifested into spiked active inventory/months of supply and soft/falling home prices, giant homebuilders have leaned into doing bigger incentives, in particular, mortgage rate buydowns to pull in priced-out homebuyers and keep sales going. Of course, given the widespread housing market softening —most acute over the past year in parts of the West, Southwest, and Southeast—many homebuilders, including PulteGroup, have further increased their incentive spending to prevent a deeper pullback in home sales. 'We have responded to these conditions by adjusting [net] sales prices where necessary and focusing sales incentives on closing cost incentives, especially mortgage interest rate buydowns,' wrote PulteGroup in its earnings report published on July 22. That strategy has led to some additional builder gross-profit compression. PulteGroup's gross margin in Q2 2025 still came in at 27.0%. While that's down from the cycle high of 31.3% at the end of the Pandemic Housing Boom in Q2 2022, it remains above pre-pandemic levels seen in Q2 2018 (24.0%) and Q2 2019 (23.1%). (Some builders, like Lennar, have seen greater margin compression.) Are bigger incentives essentially falling home prices? Sometimes, yes. Sometimes, no. In some cases, increased incentive spending is effectively a price cut—just delivered in a less visible way. But not always. Since 2022, part of the rise in incentive spending in some markets has come from homebuilders increasing base home prices and then using some of that additional revenue to fund incentives. That said, based on PulteGroup's own commentary and the visible margin compression, it's clear that in at least some markets, its increased incentive spending is functioning as a net effective price cut. Instead of bigger incentives, why don't homebuilders like PulteGroup just do bigger outright home price cuts? Some homebuilders prefer offering larger incentives rather than outright price cuts to protect community comps. Outright price cuts can sometimes complicate future sales and upset homebuyers currently in the backlog. Another reason more homebuilders are leaning into bigger incentives is because large builders claim there's currently arbitrage in financial markets, where every $1 spent on a mortgage rate buydown delivers a greater monthly payment reduction for the buyer than a $1 home price cut. 'The focus still has been on rates and rate buydowns [rather than outright price cuts] and keeping consistency of that. And if we see a little weakness in a market or buy community, we may adjust further down, but [it's] still more advantageous to the buyer and the cost is less to increase the rate buy down than to cut the price,' D.R. Horton CEO Paul Romanowski told investors in April. Why does $1 spent on mortgage rate buydowns by builders create more payment savings right now than a $1 price cut? The answer is a little wonky. Here's the in-depth breakdown by housing analyst Kevin Erdmann—who is the author of the Erdmann Housing Tracker. As Erdmann explains to ResiClub: 'One reason that mortgage rates are higher than treasuries is that they have prepayment risk. If interest rates go up, the investors are stuck with fixed income that is lower than the new market rate. If interest rates go down, the borrowers refinance and the investors don't get the extra income from the higher fixed rates. So they charge an extra spread for prepayment risk. When short term rates are higher than, like they are now, the prepayment spread is higher because they expect mortgage rates to drop at some point in the future and the borrowers to refinance. If the builders arrange the terms so that the buyers are paying [a] 4% or 5% [mortgage rate] out of the gate, they [the borrower] aren't going to prepay [because they're less likely to refi] and so the prepayment spread is very low. From the borrowers perspective, the rate buydown only pays off slowly over time as you make the payments based on the low rate. They are incentivized not to refinance, sell the home, or pay the loan off early, so the expected duration of the mortgages is much longer. The builder and borrower can pocket the gains from the lower prepayment spread.' What risks do builder buydowns pose to homebuyers? While mortgage rate buydowns can offer meaningful monthly payment relief, they could also come with trade-offs. If a buyer accepts a builder buydown instead of negotiating a lower sale price, they may be locking in a deal (depending on the terms) that only pays off if mortgage rates stay elevated. Should rates fall soon after closing, that buyer may find themselves unable to benefit fully from refinancing. In that scenario, a lower sale price or another form of incentive might have offered more long-term value. Another risk is overpaying for the buydown. If a buyer stretches their budget or accepts a higher purchase price to secure the incentive, they could be more vulnerable to ending up underwater—owing more than the home is worth—if local home prices decline and they need to sell within a few years. Speaking to analysts last month, KB Home—which tends to favor direct price reductions over incentives when affordability adjustments are needed—indeed warned that some buyers opting for competitors' rate buydown deals may be overpaying for new homes. If those buyers need to sell soon, they could struggle to recoup the inflated base price tied to the incentive-heavy purchase. 'I believe that there are customers [of other homebuilders] that are overpaying for the home to effectively get an incentive. So they're tied into this higher price that they're gonna be stuck with forever until they sell that home. They may potentially be upside down when they try to sell that home versus a clean, simple, transparent way of selling—the value of what we offer,' KB Home COO Rob McGibney said on the company's June earnings call. Builder buydowns have lost a little of their magic lately Over the past year, many public homebuilders have seen mortgage rate buydowns lose some of their magic—at least compared to early 2023, when buydowns played a key role in firming up new construction sales. 'I think the commentary that you've heard from us is that there's actually inelasticity in, you know, pricing. And that more incentives don't necessarily translate into incremental volume. So we're trying to get incentives, you know, to the level where we get the appropriate level of volume. But pouring more incentives on top of that doesn't necessarily translate into the incremental volume that would justify those incentives. So, you know, that's why we've tried to continue to maintain some discipline around what we're doing on the incentive load,' Ryan Marshall, CEO of PulteGroup, said during the builder's July 22 earnings call. Marshall added: 'We think the opportunity is to bring incentives lower over time. We're clearly not there right now, but, you know, I would long for the days of, you know, more normal incentive loads of 3.0% to 3.5%.'
Fast Company
8 hours ago
- Business
- Fast Company
The real reason a staggering 40% of U.S. homeowners are mortgage-free
Want more housing market stories from Lance Lambert's ResiClub in your inbox? Subscribe to the ResiClub newsletter. Here's a stat that would likely make financial adviser and radio personality Dave Ramsey—who has long advocated for Americans to pay off their mortgages early as a key pillar of his debt-free philosophy—at least somewhat pleased: A staggering 39.8% of U.S. owner-occupied housing units in 2023 were mortgage-free, marking a new high for this data series. That's up from 39.3% in 2022 and 32.8% in 2010. Among the 85.7 million U.S. homeowner occupied households, 34.1 million are mortgage-free. The other 51.6 million have an outstanding mortgage. So why did I say it'd only make Dave Ramsey 'somewhat pleased'? Well, the reason is that a higher percentage of Americans are mortgage-free isn't necessarily because so many are paying off their mortgages faster. Instead, it reflects a powerful underlying demographic shift: the aging composition of the American population. As Americans live longer, the U.S. fertility rate declines, and the massive baby boomer generation ages into their senior years, the U.S. population has skewed older. Since older homeowners are more likely to have paid off their mortgages, the aging composition of the American population means a larger share of homeowners are achieving mortgage-free status each year. The other thing is that when older Americans sell their house and buy another home, they're more likely to rollover their equity and purchase that next home in all-cash. Given that most demographic forecasts expect the composition of the American population to continue shifting upward in age, the share of mortgage-free households could also continue rising in the years to come. The wild card? If reverse mortgages get more popular and more older Americans take on mortgage debt again to tap into their equity.
Yahoo
a day ago
- Business
- Yahoo
Housing market ‘purgatory' for existing home sales as activity falls to lowest level in 9 months
U.S. existing home sales fell sharply in June 2025, dropping to their lowest level in nine months as elevated mortgage rates and record-high prices continued to sideline many prospective buyers. According to the National Association of Realtors (NAR), existing home sales slipped 2.7% from May to a seasonally adjusted annual rate of 3.93 million transactions, exceeding analysts' expectations for a more modest decline. Compared with last year, sales were flat overall, with concentrated declines in several regions. The housing market is traditionally busiest in spring, but this year's key buying season proved lackluster. The month-over-month decline largely reflected affordability challenges: Mortgage rates hovered close to 7% throughout April and May, when most June closings would have entered contract. 'Existing home sales have been in purgatory since mortgage rates spiked in 2022,' Lance Lambert, editor-in-chief of ResiClub, told Fortune Intelligence. 'Some of that's because strained affordability in many markets is making it harder for sellers to find a buyer at their asking price—which is also why active inventory is rising. And some of it is because many would-be home sellers, who'd like to sell and buy something else, either can't afford that next payment or don't want to part with their lower mortgage rate and payment. No matter how you look at it, this is an unhealthy housing market.' Sky-high prices On a nationwide basis, home prices climbed to an all-time high, underpinning the market's affordability squeeze. The median price for existing homes reached $435,300 in June, up 2% from the same month a year earlier and marking the 24th consecutive month of yearly price gains. NAR chief economist Lawrence Yun sounded an optimistic tone about this staggering climb: 'The record-high median home price highlights how American homeowners' wealth continues to grow—a benefit of homeownership. The average homeowner's wealth has expanded by $140,900 over the past five years.' Despite weak sales, inventory is slowly rebuilding: 1.53 million homes were listed for sale at the end of June, up nearly 16% from a year ago—the highest level in years—though still 0.6% lower than in May owing to seasonal factors. This puts the market's unsold inventory at a 4.7-month supply, matching pre-pandemic norms and up from 4.0 months a year prior. Regional dynamics varied. Sales dropped in the Northeast, Midwest, and South, but edged higher in the West, with year-over-year changes mirroring these splits. Single-family home sales slipped 3%, while sales of condominiums and co-ops were stable compared with May but down 5.3% against June 2024. One positive for buyers: more supply and slightly longer time on market. reported that active inventory for June rose for the 20th straight month, climbing nearly 29% year over year to 1.08 million homes, and the average home spent 53 days on market, five days longer than a year earlier. However, these gains are offset by persistent undersupply when compared with the pre-pandemic market, and price cuts became more common, with nearly 21% of listings experiencing downward adjustments—the highest June share since 2016. 'Multiple years of undersupply are driving the record-high home price,' Yun said, noting that construction continues to lag population growth and is holding back first-time buyers. 'If the average mortgage rates were to decline to 6%, our scenario analysis suggests an additional 160,000 renters would become first-time homeowners and a boost in activity from existing homeowners,' Yun added. If mortgage rates decrease in the second half of this year, Yun said, he expects home sales to increase across the country owing to strong income growth, healthy inventory, and a record-high number of jobs. For now, though, it's a familiar story of peak prices and affordability as the main obstacles for would-be homebuyers in the U.S. For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing. This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
Zillow updates home price forecast for over 400 housing markets: See the map
Want more housing market stories from Lance Lambert's ResiClub in your inbox? Subscribe to the ResiClub newsletter. How to go from quiet to commanding Apple iOS 26 is now available to the public. Here's how to get it—and 5 useful new features to try Here's why Trump's proposed 401(k) executive order may be very bad news for your retirement This week, Zillow economists published their updated 12-month forecast, projecting that U.S. home prices—as measured by the Zillow Home Value Index—will fall by 1.0% between June 2025 and June 2026. For calendar year 2025, they forecast U.S. home prices, as measured by the Zillow Home Value Index, will fall -2.0%. Heading into 2025, Zillow's 12-month forecast for U.S. home prices was +2.6%. However, many housing markets across the country softened faster than expected, prompting Zillow to issue several downward revisions. While Zillow has since stopped cutting its outlook, it is still kind of bearish. At least over the short-term. Why did Zillow downgrade its forecast for national home prices so many times this year? 'The rise in [active] listings is fueling softer [home] price growth, as greater supply provides more options and more bargaining power for buyers,' Zillow economists wrote in March. 'Potential buyers are opting to remain renters for longer as affordability challenges suppress demand for home purchases.' Essentially, Zillow believes that strained housing affordability—driven by U.S. home prices soaring over 40% during the Pandemic Housing Boom and mortgage rates jumping from 3% to 6% in 2022—is putting upward pressure on active inventory growth and short-term downward pressure on home price growth. 'Sellers have been motivated to join the market through the first half of the year, but buyer demand hasn't kept up. With housing inventory accumulating, Zillow forecasts home values will decline by 2.0% in [calendar year] 2025,' wrote Zillow economists on Wednesday. 'Slightly lower mortgage rates toward the end of the year could further aid affordability, but significant improvements appear unlikely. Still, home shoppers have some advantages–plenty of options have given them more bargaining power than in any summer in at least seven years.' According to Zillow's home price model, the listing site also believes that weakening and softening housing markets across the Sun Belt will weigh on nationally aggregated home prices this year. Among the 300 largest U.S. metro area housing markets, Zillow expects the strongest home price appreciation between June 2025 and June 2026 to occur in these 10 areas: Atlantic City, NJ → 2.9% Kingston, NY → 2.2% Knoxville, TN → 2.0% Torrington, CT → 1.9% Rockford, IL → 1.7% Concord, NH → 1.7% Pottsville, PA → 1.7% Fayetteville, AR → 1.6% Norwich, CT → 1.6% East Stroudsburg, PA → 1.5% Among the 300 largest U.S. metro area housing markets, Zillow expects the weakest home price appreciation between April 2025 and April 2026 to occur in these 10 areas: Houma, LA → -9.6 Lake Charles, LA → -9.5% Alexandria, LA → -8.0% New Orleans, LA → -7.2% Lafayette, LA → -7.0% Shreveport, LA → -6.9% Beaumont, TX → -6.5% San Francisco, CA → -6.1% Austin, TX → -5.1% Corpus Christi, TX → -5.0 Below is what the current year-over-year rate of home price growth looks like for single-family and condo home prices. The Sun Belt, in particular Southwest Florida, is currently the epicenter of housing market weakness right now. This post originally appeared at to get the Fast Company newsletter: Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
Zillow updates home price forecast for over 400 housing markets: See the map
Want more housing market stories from Lance Lambert's ResiClub in your inbox? Subscribe to the ResiClub newsletter. How to go from quiet to commanding Apple iOS 26 is now available to the public. Here's how to get it—and 5 useful new features to try Here's why Trump's proposed 401(k) executive order may be very bad news for your retirement This week, Zillow economists published their updated 12-month forecast, projecting that U.S. home prices—as measured by the Zillow Home Value Index—will fall by 1.0% between June 2025 and June 2026. For calendar year 2025, they forecast U.S. home prices, as measured by the Zillow Home Value Index, will fall -2.0%. Heading into 2025, Zillow's 12-month forecast for U.S. home prices was +2.6%. However, many housing markets across the country softened faster than expected, prompting Zillow to issue several downward revisions. While Zillow has since stopped cutting its outlook, it is still kind of bearish. At least over the short-term. Why did Zillow downgrade its forecast for national home prices so many times this year? 'The rise in [active] listings is fueling softer [home] price growth, as greater supply provides more options and more bargaining power for buyers,' Zillow economists wrote in March. 'Potential buyers are opting to remain renters for longer as affordability challenges suppress demand for home purchases.' Essentially, Zillow believes that strained housing affordability—driven by U.S. home prices soaring over 40% during the Pandemic Housing Boom and mortgage rates jumping from 3% to 6% in 2022—is putting upward pressure on active inventory growth and short-term downward pressure on home price growth. 'Sellers have been motivated to join the market through the first half of the year, but buyer demand hasn't kept up. With housing inventory accumulating, Zillow forecasts home values will decline by 2.0% in [calendar year] 2025,' wrote Zillow economists on Wednesday. 'Slightly lower mortgage rates toward the end of the year could further aid affordability, but significant improvements appear unlikely. Still, home shoppers have some advantages–plenty of options have given them more bargaining power than in any summer in at least seven years.' According to Zillow's home price model, the listing site also believes that weakening and softening housing markets across the Sun Belt will weigh on nationally aggregated home prices this year. Among the 300 largest U.S. metro area housing markets, Zillow expects the strongest home price appreciation between June 2025 and June 2026 to occur in these 10 areas: Atlantic City, NJ → 2.9% Kingston, NY → 2.2% Knoxville, TN → 2.0% Torrington, CT → 1.9% Rockford, IL → 1.7% Concord, NH → 1.7% Pottsville, PA → 1.7% Fayetteville, AR → 1.6% Norwich, CT → 1.6% East Stroudsburg, PA → 1.5% Among the 300 largest U.S. metro area housing markets, Zillow expects the weakest home price appreciation between April 2025 and April 2026 to occur in these 10 areas: Houma, LA → -9.6 Lake Charles, LA → -9.5% Alexandria, LA → -8.0% New Orleans, LA → -7.2% Lafayette, LA → -7.0% Shreveport, LA → -6.9% Beaumont, TX → -6.5% San Francisco, CA → -6.1% Austin, TX → -5.1% Corpus Christi, TX → -5.0 Below is what the current year-over-year rate of home price growth looks like for single-family and condo home prices. The Sun Belt, in particular Southwest Florida, is currently the epicenter of housing market weakness right now. This post originally appeared at to get the Fast Company newsletter: Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
