Builder Confidence Just Hit a 14-Year Low; 43% Are Cutting Prices; Why New-Home Buyers May Have More Leverage Than They Think

Builders are nervous.

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Really nervous.

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The latest National Association of Home Builders/Wells Fargo Housing Market Index fell to 29 in October.

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That is the lowest reading in nearly 14 and a half years, excluding the immediate onset of the pandemic. Reuters

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And the part that matters most to buyers is this:

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43% of builders reported cutting prices.

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65% reported using sales incentives. Reuters

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That tells me something very clearly:

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Builders are not sitting comfortably.

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They are trying to move inventory.

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I. BUILDER CONFIDENCE JUST TOOK ANOTHER HIT

The October builder-confidence index fell three points to 29. Reuters

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A reading below 50 means more builders view conditions as poor than good.

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And 29 is not a mildly weak number.

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It reflects a market dealing with several problems at once:

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Higher mortgage rates.

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Higher construction costs.

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Higher borrowing costs for builders.

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Labor shortages.

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Weaker buyer traffic.

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And consumers who are increasingly worried about affordability.

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Prospective-buyer traffic fell to one of the weakest readings in years. Reuters

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That is exactly what you would expect when monthly payments move sharply higher.

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II. 43% OF BUILDERS ARE CUTTING PRICES

This is the number I think buyers should pay the most attention to.

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According to NAHB, 43% of builders cut home prices in October.

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That is the highest share since 2020.

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And nearly two-thirds of builders — 65% — are using some form of sales incentive. Reuters

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Those incentives can include:

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Closing-cost credits.

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Mortgage-rate buydowns.

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Price reductions.

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Upgrade packages.

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Lot premiums reduced or waived.

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Or other incentives tied to specific inventory homes.

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That does not mean every builder is desperate.

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But it does mean buyers should not automatically accept the first deal presented to them.

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There may be more room to negotiate.

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III. BUILDERS HAVE A DIFFERENT PROBLEM THAN RESALE SELLERS

A normal homeowner can often decide:

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“I do not like the offer. I’ll just stay.”

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A builder cannot always do that.

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Builders have construction loans.

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Carrying costs.

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Completed inventory.

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Future phases.

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Land commitments.

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Employees.

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And investors expecting homes to sell.

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An unsold completed home costs money every day it sits.

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That is why builders can be much more aggressive with incentives than a typical resale seller.

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The builder does not necessarily need to reduce the headline price dramatically.

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They may prefer to preserve the recorded sale price and spend money elsewhere.

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That is where financing becomes important.

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IV. THE ADVERTISED BUILDER RATE IS NOT THE WHOLE DEAL

A buyer walks into a sales office and sees:

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“Special financing available.”

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Great.

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But I still want to know:

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What is the home price?

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How much is the builder contributing?

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How much does the rate buydown actually cost?

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Are there points?

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Does the incentive require the builder’s affiliated lender?

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Does the rate apply to every home or only selected inventory?

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What are the HOA dues?

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Is there Mello-Roos or another special assessment?

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What happens if the buyer wants a different loan program?

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And how does the builder’s financing compare with an outside lender on the exact same transaction?

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Sometimes the builder financing is extremely difficult to beat.

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If it is, use it.

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But compare the entire transaction first.

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V. CALIFORNIA BUYERS MAY SEE THIS MOST IN HIGH-BUILD MARKETS

This is especially relevant in areas with a lot of new construction.

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Think:

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Riverside County.

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The Inland Empire.

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Sacramento-area growth markets.

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Parts of Orange County.

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And many Sun Belt markets outside California.

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If a community has several completed homes sitting, a builder may be motivated to close those units before starting or releasing more inventory.

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That can create opportunities.

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A buyer may be able to negotiate:

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A better purchase price.

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A larger closing-cost credit.

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A rate buydown.

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Upgrades.

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Or a combination of those.

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Again, the key is not simply asking:

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“What is your best rate?”

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Ask:

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“What is your best total deal?”

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VI. THE RESALE SELLER IS COMPETING WITH THIS TOO

This builder pressure also matters if you are buying or selling a resale home.

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A resale listing near a new-home development is not just competing with another house.

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It may be competing with:

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A builder-paid buydown.

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A large closing-cost credit.

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Brand-new construction.

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A warranty.

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And upgrades.

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That means resale sellers may need to think creatively too.

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Sometimes a seller credit toward financing will do more for a buyer than another price reduction.

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Sometimes price is the right answer.

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Sometimes it is a combination.

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But the competition is not just the house.

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It is the financing package attached to the house.

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THE BOTTOM LINE

Builder confidence just fell to its lowest level in nearly 14 and a half years. Reuters

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43% of builders are cutting prices.

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65% are offering incentives.

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Buyer traffic is extremely weak. Reuters

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That does not mean every new-home community is giving homes away.

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But it does mean buyers have a reason to negotiate.

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So if you are considering new construction, do not walk into the sales office and ask only:

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“What is the rate?”

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Ask:

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“What is the total builder contribution?”

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“Can the incentive be used differently?”

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“Is there flexibility on price?”

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“Which inventory homes have the strongest incentives?”

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And:

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“How does this compare with the resale homes nearby?”

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In this market, the best new-home deal may not be the house with the lowest sticker price.

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It may be the house with the strongest overall financing package.

Builder confidence fell to its lowest level in nearly 14.5 years, with 43% cutting prices and 65% using incentives. Learn what that means for new-home buyers and how to negotiate the total deal.

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