Builder confidence in new construction sales has dropped to levels not seen in about two and a half years as affordability concerns keep buyers away. More builders also say they’re cutting prices.
Homebuilder sentiment regarding new single-family home sales decreased 2 points in June to 32, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Tuesday. Any reading below 50 is seen as negative.
The index last sank to the low 30s in December 2022, when interest rates rebounded, and in April 2020, with the onset of the COVID-19 pandemic.
The weakening outlook on new home sales comes as mortgage rates remain near 7% amid historically high prices and economic uncertainty, and inventory for new and existing homes appears oversupplied in some parts of the country. Momentum is said to have shifted in favor of buyers in markets such as Houston and Denver.
“Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets,” said NAHB Chief Economist Robert Dietz in a statement. “Given current market conditions, NAHB is forecasting a decline in single-family starts for 2025.”
Single-family housing starts declined 1.6% in the latest data from April, according to the U.S. Census Bureau, and permits pulled for starts were at a two-year low, marking a softening in demand. The challenges don’t just weigh on new homes either, as the National Association of Realtors reported last month that existing home sales were at a 16-year low.
Builders cut home prices
The NAHB index found 37% of homebuilders had reduced home prices in June, the highest reading since the trade association began tracking the dataset in 2022. This is an 8% increase from April.
The price gap between new and existing homes shrank during the first three months of the year, with the median sales price for a new home hitting $416,900 and $402,300 for an existing home, according to the NAHB.
For builders discounting homes, the average reduction was 5% in June, the NAHB survey said. Another 62% of homebuilders cited using sales incentives to attract buyers waiting on the sidelines, up 1% from the prior month. Some common sales incentives include mortgage rate buydowns, closing cost credits and discounted upgrades.
Miami-based Lennar, one of the country’s largest homebuilders, reported a 9% decline in average sales prices Monday as part of its fiscal second-quarter earnings. The average price for a Lennar home dropped to $389,000 from $408,000 the previous quarter, while the builder completed a slightly higher number of homes compared to last year.
