Buyers continue to have the upper hand for new homes as builders keep cutting prices, according to research released Thursday morning.
Still, homebuilders report having a more positive outlook on the new-home market as mortgage rates drop, the National Association of Home Builders' monthly survey found.
Homebuilders' feelings on current and future new-home sales increased by 5 points to 37 in October, according to responses from nearly 500 builders in the National Association of Home Builders/Wells Fargo Housing Market Index. Any rating below 50 is regarded as negative, making October the 18th consecutive month with a negative outlook on the new home market.
The biggest challenge for homebuilders this year has been the issue of affordability, as elevated home prices and 30-year mortgage rates above 6% continue to limit buyers' purchasing power.
The median price of a new single-family home, according to the U.S. Census Bureau, was $413,500 in August, a nearly 5% month-over-month increase from July. Despite rising costs on the builder side, many continue to slash prices.
The share of builders cutting home prices remained nearly the same in October at 38% of builders surveyed. But the average discount on homes increased for the first time this year, reaching 6%.
To put it in perspective, a 6% price deduction on the median sale price of a new home would save buyers $24,810.
Builders feel the profit squeeze
The increased costs of building materials, land, impact fees and tariffs are pushing up prices for Texas-based production builder Stylecraft, according to Vice President of Sales and Marketing Laura Sterr.
“There’s still a lot of distrust or unease about how much things cost in general," Sterr told Homes.com. "We’re almost starting off on the wrong foot with a lot of buyers, because home prices have gone up … We’re building more, but our growth is down as far as margin and profit perspective in a lot of areas.”
Overall, builders, like Stylecraft, are building more. The inventory of completed new homes for sale reached a 16-year high in August, according to federal data from the U.S. Census Bureau. There were 124,000 new, completed homes for sale. The last time inventory exceeded that was in July 2009.
Stylecraft built about 857 homes in 2024, according to data from trade publication Pro Builder. It’s the 74th largest builder in the country by volume. To compete with national, publicly traded builders such as D.R. Horton or Lennar, Stylecraft has cut its home prices to stay "close enough so you're not excluding us for our prices," said Sterr.
And the price cuts are "definitely, definitely felt when we do that," said Sterr, noting a squeeze on profit and margins.
Survey results suggest that builders anticipate demand to return in the coming months due to mortgage rates. Expectations of home sales in the next six months spiked 9 points to 54.
“The 30-year fixed-rate mortgage fell from just above 6.5% at the start of September to 6.3% in early October,” said NAHB Chief Economist Robert Dietz in a statement. “Combined with anticipated further easing by the Fed, builders expect a slightly improving sales environment, albeit one in which persistent supply-side cost factors remain a challenge.”
Looking at the resale side, agents previously told Homes.com that recent rate declines had little impact on sales so far this fall.
“While it’s helpful and we’re happy to have had the rate decrease … it hasn’t sort of spurred on the kind of fever activity that we might have hoped we would see for the last quarter of the year,” Los Angeles Compass real estate agent Stephanie Younger said.
Other indices of the survey increased, but remained negative: Current sales conditions increased 4 points to 38, and traffic of prospective buyers increased 4 points to 25.