Walk through a new-home community right now and you will find something unusual. Nearly half the builders are cutting prices, and the people who were supposed to be shopping have mostly stayed home.
The NAHB/Wells Fargo Housing Market Index, released October 19, fell 3 points to 29. That is the lowest reading since June 2012.
Inman reported the numbers, and the full article is posted by Inman.
43% Of Builders Cut Prices, And The Average Cut Is 6%
The index runs from 0 to 100, and anything under 50 means builders see conditions as more poor than good. The all-time high was 90 in November 2020.
In October, 43% of builders cut prices. That is the highest share in NAHB’s data going back to 2020.
The average cut was 6%, the same as it has been for seven months in a row. On a $400,000 new house, a 6% cut is $24,000.
65% Are Handing Out Sweeteners Like Rate Buydowns
Price cuts are only one tool. About 65% of builders used sales incentives such as mortgage rate buydowns or help with closing costs.
It is the 19th straight month that at least 60% of builders have done so. The deals have turned into an everyday part of buying new.
A rate buydown lowers the interest rate for a set period, or for the life of the loan, which lowers the monthly payment. A closing-cost credit puts cash back into a buyer’s pocket at the table.
Buyer Traffic Fell To 18, The Weakest Since 2012
The index has three parts. Builders rate current sales conditions at 33, down 2 points. They rate sales expectations for the next six months at 32, down 5 points.
Traffic of prospective buyers fell 5 points to 18. Outside of the first months of the pandemic in April 2020, that is the lowest since April 2012.
In other words, a lot of model homes are open and not many families are walking through.
Every Region Is Soft, But The West Is Weakest
NAHB’s regional readings are three-month averages. The West is the lowest at 26, down 2. The South is at 30, down 1, and the Northeast is at 38, down 1.
The Midwest is the strongest at 40, though it slipped 3 points. Single-family permits there are up 2.9%.
Builders cite higher costs for construction loans, materials and diesel fuel, along with worsening labor and lot conditions.
“Mortgage Rates Have Climbed Well Above 7 Percent In Recent Weeks”
That is how NAHB Chairman Bill Owens, a home builder from Worthington, Ohio, described the pressure on buyers.
NAHB chief economist Robert Dietz says demand persists, but higher mortgage rates are holding it back, along with elevated construction costs and weaker consumer confidence.
What It Means If You Are Shopping For A New Home
When builders are this eager, buyers hold more cards than the sticker price suggests.
- Ask what incentives are available before you talk price. A rate buydown can be worth more than a flat cut.
- Compare the builder’s in-house lender with an outside quote. A deal is only as good as the total cost.
- Ask about upgrades such as flooring, appliances and landscaping. Some builders add them instead of lowering the price.
- Hire your own inspector. A new house can still have mistakes, and the inspection is your leverage.
- Get everything promised in writing, with dates.
Read The Fine Print On A Rate Buydown
A buydown looks like free money, but the details matter. Ask whether the lower rate lasts for the whole loan or only for the first year or two, and what the payment becomes after that.
Ask what price the builder would take if you skipped the incentive and used your own lender. Sometimes the cash discount and the buydown are not equal.
Work out the monthly payment both ways, including taxes and insurance, and compare the numbers side by side. Then sleep on it before you sign.
What It Means If You Are Selling An Older House
Here is the tough part for an owner of an existing home. A builder who can buy down a rate may offer a lower monthly payment than a private seller can match.
With nearly half of builders also cutting prices, new construction is a stronger competitor for resale listings in the same price range.
That does not mean you cannot win. A mature neighborhood, a big lot, finished landscaping and a move-in date next month are things a new community cannot offer.
Price your house to the buyer who is comparing it with a new one, and be ready to help with closing costs.
The Bottom Line
Builders cut prices, offer incentives and still say business is slow. That is not a sign of a crash, but it is a sign of a market where patience pays.
If you are a buyer, you do not have to rush. If you are a seller, you have to be sharp about price and condition.
Either way, the next few months of numbers are worth watching, because the builders are the first to feel a change in the weather.
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