Homes under construction at the Toll Brothers Preserve at Folsom Ranch community in Folsom, California, US, on Thursday, March 6, 2025. T
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Higher mortgage rates and uncertainty in the broader economy continue to weigh on consumers — and consequently on the nation’s homebuilders.
Builder sentiment in June dropped 2 points from May to 32 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Anything below 50 is considered negative. The index stood at 43 in June 2024.
Analysts had been expecting a slight improvement, given recent tariff negotiations and pullbacks by the Trump administration.
This index has only seen a lower reading than June’s level twice since 2012 – in December 2022, after mortgage rates shot up from record lows during the first two years of the pandemic, and in April 2020 at the very start of the pandemic.
Of the index’s three components, current sales conditions fell 2 points to 35, sales expectations in the next six months dropped 2 points to 40, and buyer traffic fell 2 points to 21, the lowest reading on that metric since the end of 2023.
“Buyers are increasingly moving to the sidelines due to elevated mortgage rates and tariff and economic uncertainty,” said Buddy Hughes, NAHB chairman and a homebuilder from Lexington, North Carolina, in a release. “To help address affordability concerns and bring hesitant buyers off the fence, a growing number of builders are moving to cut prices.”
In the June survey, 37% of builders said they had cut prices, the highest share since NAHB started tracking the monthly metric three years ago. That is up from 34% who reported cutting prices in May and 29% in April. The average price reduction was 5%, which has been steady since late last year.
“Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets,” said Robert Dietz, chief economist at the NAHB. “Given current market conditions, NAHB is forecasting a decline in single-family starts for 2025.”
The report follows quarterly earnings from Lennar, one of the nation’s largest homebuilders, in which the second-quarter average home price dropped nearly 9% from the same quarter in 2024. Guidance on new orders and deliveries was also below analysts’ expectations.
“As mortgage interest rates remained higher and consumer confidence continued to weaken, we drove volume with starts while incentivizing sales to enable affordability and help consumers to purchase homes,” said Lennar co-CEO Stuart Miller in an earnings release.
Regionally, on a three-month moving average, the South and West showed the weakest builder sentiment. Those are the regions where the most homes are built.
