Confidence Remains Low Despite Modest Tax Relief Boost
U.S. homebuilders continue to grapple with weak buyer demand, prompting the highest rate of price cuts in three years. According to the July survey by the National Association of Home Builders (NAHB), builder confidence rose slightly by 1 point to 33. However, any score below 50 reflects negative sentiment. The index has now remained in negative territory for 15 consecutive months, down from 41 a year ago.
This modest gain was attributed to recent budget legislation that included tax relief for households, small businesses, and builders. However, persistently high mortgage rates have offset these benefits, leaving affordability as a major concern. “The housing sector has weakened in 2025 due to poor affordability conditions,” noted NAHB chairman Buddy Hughes.
Price Cuts and Rate Buydowns Gain Momentum
In July, 38% of homebuilders reported cutting prices, the highest percentage since NAHB began tracking the data in 2022. This is a sharp increase from 29% in April. The average price cut held steady at 5% for the ninth consecutive month.
Builders have also been buying down mortgage rates to attract buyers, a strategy that lowers monthly payments but also reduces builder margins. Analysts caution that if builders combine these incentives with broader price reductions, the financial impact could be significant. “More outright price reductions would likely cause larger negative gross margins and earnings per share drag,” said Jonathan Woloshin of UBS.
Market Outlook Remains Challenging for 2025
Among the NAHB index’s three components, current sales conditions edged up 1 point to 36, while expectations for the next six months improved by 3 points to 43. However, buyer traffic fell to 20, the lowest level since late 2022.
The NAHB’s chief economist, Robert Dietz, warned that single-family housing starts are expected to decline in 2025 due to persistent affordability challenges. So far, single-family permits are down 6% year-to-date, further confirming the slowdown in construction activity.
Regional Trends Highlight Uneven Confidence
Builder sentiment varied across the country. The Northeast recorded a 2-point increase in confidence, while the Midwest remained unchanged. In contrast, sentiment declined further in the South and West, where builders reported the weakest market conditions.
With affordability pressures persisting and mortgage rates remaining elevated, the outlook for the housing sector remains cautious. Builders are balancing incentives with profitability as they navigate an increasingly complex economic landscape.
