Home builders boost sales incentives to 5-year high as they struggle to sell newly built homes

Housing affordability continues to discourage many buyers and limit home sales. - Getty Images/iStockphoto

The numbers: Confidence among home builders ticked down in August as home-buying demand remains weak, and builders are throwing more sales incentives at buyers to boost sales.

Builders’ sentiment in the market fell in August from the month before. Sentiment was glum as builders face weak demand as well as challenges associated with developing land and building homes.

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The National Association of Home Builders’ monthly confidence index fell in August to 32, the industry group said. A year ago, the index stood at 39.

Builder sentiment has been in negative territory for the last 16 months in a row, the NAHB noted.

Big picture: Persistently high mortgage rates and home prices are keeping buyers away from the market.

The pace of home sales remains depressed, as many buyers can’t afford to enter the market. The 30-year fixed-rate mortgage rate was 6.58% as of Aug. 14, according to Freddie Mac. The median price of a new home was $401,800.

Concerns over the future of the U.S. economy, with reports of a weakening labor market, are behind the reluctance to buy homes right now.

Related: Americans more worried about inflation and unemployment after new trade deals leave tariffs at highest level in decades

“Affordability continues to be the top challenge for the housing market and buyers are waiting for mortgage rates to drop to move forward,” Buddy Hughes, a home builder and developer from Lexington, N.C., and chair of the NAHB, said in a statement.

On top of the demand-side weakness, “builders are also grappling with supply-side headwinds,” he added, “including ongoing frustrations with regulatory policies connected to developing land and building homes.”

Despite the pessimism, investors — including Warren Buffett — have been buying home-builder stocks, as MarketWatch has reported. Buffett’s Berkshire Hathaway BRK.B BRK.A recently bought shares in D.R. Horton DHI and in Lennar LEN, the two biggest builders in America.

Read more:Investors are plowing into homebuilder stocks. Will Jackson Hole prove them wrong?

Key details: In August, 37% of builders cut home prices, down from a recent high of 38%. The average price reduction was 5% in August, unchanged from the previous month.

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The use of sales incentives, on the other hand, grew to 66% in August from 62% the previous month. The share of builders offering incentives reached the highest level since May 2020, the NAHB said.

Sales incentives include offering mortgage-rate buydowns, where the builder temporarily offers a lower rate to the buyer for a set period before it adjusts upwards.

The three gauges that underpin the overall builder-confidence index were mixed.

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