Homebuilders Slash Prices as Buyer Demand Falters amid Economic Uncertainty
Irvine, CA – March 28, 2025 – The nation’s homebuilders are facing a significant downturn in buyer demand, driven by widespread concerns about the broader economy. In response, they are implementing price cuts at the highest rate seen in three years, according to the latest monthly builder confidence survey from the National Association of Home Builders (NAHB).While builder confidence saw a slight uptick in July, rising 1 point to 33 on the NAHB index, this figure remains firmly in negative territory. An index reading below 50 indicates negative sentiment among builders. This marks the 15th consecutive month the index has been below this crucial threshold, a stark contrast to the 41 recorded in July of the previous year.
The marginal advancement this month can be partly attributed to the recently enacted budget act, which has provided some much-needed tax relief for households, homebuilders, and small businesses. However, this relief is being counteracted by persistently elevated mortgage rates, which have remained in a narrow, high range 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,” stated Buddy Hughes, NAHB chairman and a builder from Lexington, North Carolina.the impact of these conditions is evident in the growing number of builders resorting to price reductions. In July, a significant 38% of builders reported cutting prices, the highest percentage as the NAHB began tracking this metric in 2022.This is a significant increase from April,when only 29% of builders were offering price cuts. The average price reduction has held steady at 5% as November.
Builders are also actively employing mortgage rate buydowns to attract potential buyers. While this strategy helps to bring customers through the door,it has a notable impact on builder margins,though not as severe as outright price reductions.
“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,” commented Jonathan Woloshin, a real estate and lodging analyst with UBS.
Examining the three components of the NAHB index, current sales conditions saw a modest increase of 1 point to 36, and sales expectations for the next six months rose by 3 points to 43. Though, buyer traffic experienced a concerning 1-point drop to 20, reaching it’s lowest reading as the end of 2022.
“Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges,” warned 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.”
Regionally, builder sentiment was most robust in the Northeast, where it increased by 2 points. The Midwest remained flat, while the South and West experienced further declines, indicating the weakest sentiment in these areas.
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