Builder confidence registered a small increase in July. Continuous single-family homebuilder optimism The National Association of Home Builders (NAHB) index increased by one point in November, securing a score of 33. The industry has experienced some minor positive progress. Even with this optimism, it can’t escape a tough housing atmosphere with elevated mortgage rates and fading buyer demand. That means the NAHB index has now spent 15 straight months in the negative land. Read More Election Photo Diary: Builders Are Really, Very Concerned About the Economic Landscape
Buddy Hughes, the NAHB chair and builder from Lexington, North Carolina, commended the recent mini-budget for delivering targeted tax relief to households and small businesses. He noted the housing industry continues to experience major headwinds. He explained, “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.”
Even with recent increase in builder confidence, the market is currently experiencing a significant drop in demand. Permits for single-family units are down 6% year to date. At the same time, the builder traffic component of the Homebuilder Market Index (HMI) has fallen to levels not seen in more than 2 years. Further compounding these conditions, homebuilders are slashing prices at the fastest pace in three years. For context, only 38% of builders were doing price cuts in July. That represents the largest share since the NAHB started tracking this measure back in early 2022. The typical price cut was 5%, something we’ve seen since last November.
The continued elevated mortgage rates have sidelined a significant number of buyers, driving up overall market caution and push down demand. Robert Dietz, NAHB’s chief economist, expressed concern, stating, “Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges.” This sentiment even more intensifies the pressures that builders are feeling as they continue to operate in a very rocky economic environment.
While lowering prices might be an attractive option for some builders looking to boost sales, analysts say strategies like that could come with major caveats. Jonathan Woloshin, a real estate and lodging analyst with UBS, cautioned that “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.”