Homebuilder Confidence Declines Sharply in June
In June, homebuilder sentiment fell by 2 points to a reading of 32 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This figure remains well below the neutral threshold of 50, painting a gloomy picture of the housing market's current mood. Despite expectations for a modest rebound thanks to recent tariff negotiations and easing trade tensions, the index shrank instead.
Sentiment at Levels Seen Only Twice Since 2012
Notably, homebuilder confidence has only dropped below this mark twice before in the past decade: once in April 2020 amid the initial pandemic shock, and again in December 2022 as mortgage rates surged from record lows. This persistent softness highlights ongoing challenges facing the sector.
Weakness Across Key Market Drivers
- Current sales conditions slipped 2 points to 35.
- Sales expectations for the next six months dropped 2 points to 40.
- Buyer traffic declined 2 points to 21 — the lowest since late 2023.
With buyer turnout thinning, builders face mounting hurdles in attracting hesitant consumers.
Rising Mortgage Rates and Economic Uncertainty Weigh on Buyers
Elevated mortgage rates alongside broader economic unpredictability continue to push potential homebuyers to the sidelines. Buddy Hughes, NAHB chairman and experienced homebuilder, noted that an increasing number of builders are resorting to price cuts to lure these cautious buyers back into the market.
Price Reductions Gain Traction
In June, 37% of builders reported cutting prices—the highest share recorded since the NAHB began monitoring this trend three years ago. This marks a steady climb from 29% in April to 34% in May. The average discount offered has stabilized at around 5% since late last year, signaling a broader shift toward affordability strategies within the industry.
Inventory Growth and Buyer Hesitation Suppress Price Growth
Rising inventory levels coupled with prospective buyers delaying purchases in hopes of more favorable affordability are exerting downward pressure on prices across many markets. Chief economist at NAHB, Robert Dietz, emphasized that these conditions are leading to softer price growth and even declines in resale markets.
Reflecting these trends, NAHB forecasts a decline in single-family housing starts for 2025, suggesting builders are bracing for a prolonged period of subdued demand.
Industry Giants Report Declining Prices and Flagging Orders
The latest quarterly reports from one of the nation’s largest homebuilders revealed an average home price drop of nearly 9% year-over-year for the second quarter. Additionally, guidance for new orders and deliveries fell short of analyst expectations.
Co-CEO Stuart Miller attributed the results to persistently high mortgage rates and declining consumer confidence: "We focused on increasing starts while also offering incentives to improve affordability and help buyers secure homes," he said.
Regional Outlook: The South and West Lag Behind
Examining the three-month moving average, builder sentiment appears weakest in the South and West — regions that historically lead the country in homebuilding activity. This regional lag accentuates the sector's broader challenges amid the current economic climate.
