Deteriorating summer sales conditions and stiffening macro-economic headwinds tipped homebuilder confidence to its lowest level in a year, a signal the new home market has not yet found its “bottom.”
Underlying the late-summer swoon in confidence about both present- and future selling conditions is a buyer pool that remains cautious and squeezed by affordability pressures, even as many builders continue offering generous incentives to close sales.
While few question a pervasive existence of underlying demand and pervasive underbuilding, both private and public homebuilders describe potential buyers, wary of rising mortgage rates and broader economic uncertainty, as idling in a “wait and see” mode.
This stall is particularly pronounced among younger, entry-level buyers and the builders that serve them, but is reverberating across the market.
Affordability gaps between asking prices and monthly payments, on the one hand, and household income wherewithal remain show-stoppers among buyers.
New-home sales prices hit a 5-year low in July, underscoring the ongoing financial strains challenging the homebuilding market. What’s more, the price drops themselves could begin to trigger a “falling knife effect” among would-be buyers hesitant to make a move before prices stabilize at their floor.
With each passing month, more builders introduce an array of incentive tools, concessions and discounts to move their finished and in-process inventory, and more of them trade off their squeeze margins to catalyze orders. What’s becoming clear is that a “strike price” floor that will secure and sustain a sustainable sales pace remains elusive.
Against this backdrop, homebuilder confidence slid three points to 32 in September, remaining negative, i.e. below 50, and reaching its lowest level in a year, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released on Wednesday.
“Buyer traffic has weakened across much of the country, largely because of rising mortgage rates,” said NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio. “Builders also continue to face higher material costs, rising gas and diesel prices and persistent labor shortages. In some markets, builders report that increased immigration enforcement is discouraging legal workers from reporting to job sites.”
NAHB Chief Economist Robert Dietz noted “tight lending conditions and elevated land, labor and construction costs” as other factors weighing down homebuilder confidence.
The latest HMI survey notes that 42% of builders rated current lot availability as poor, and 38% rated lot availability as fair.
In September, 66% of builders reported using sales incentives, while 38% said they reduced prices, with the average price reduction coming in unchanged at 6%. The current sales conditions index declined four points to 35, while the index measuring future sales expectations fell six points to 37. Meanwhile, the prospective buyer traffic index remained steady at 23.
Regionally, the three-month moving averages showed mixed results. The Midwest HMI declined one point to 44, the Northeast dropped five points to 39, and the South decreased one point to 31. In contrast, the West gained one point, reaching 28.
A “surprisingly challenging” market
Minnesota-based Creative Homes, ranked 54th on HousingWire’s Homebuilder Rankings with 219 homes sold last year, does most of its sales volume between the $400,000 and $1 million range. The builder continues to rely on incentives to push hesitant buyers over the finish line, particularly under the $800,000 price point.
“There’s certainly still demand there, but urgency is obviously not as prevalent,” Nick Hackworthy, President and CEO at Creative Homes, said in an interview with HousingWire TBD. According to Hackworthy, “it’s not terrible out there,” but buyers are working with “a bit of a slower decision-making process.”
While many of Creative Homes’ buyers aren’t as interest-rate sensitive as one might expect, Hackworthy said, sales performance has been choppy since the onset of the War in Iran, leading to an inconsistent spring and summer.
“Like many builders, we’re seeing some volatility month to month. We had a really good August, but July was not very great for us. I’m sure there’s other builders in other markets that potentially had a good July and a poor August,” Hackworthy explained.
In an interview, Jackson Su, co-managing partner at Texas-based Bridge Tower Group, agreed that conditions remain choppy, calling the current homebuilding market “surprisingly challenging.”
Bridge Tower Group’s for-sale homebuilding subsidiary, Westfield Homes, predominantly sells homes in the mid-$300s, targeting entry-level and affordability-driven buyers in peripheral suburban submarkets in the Dallas-Fort Worth area.
Su had anticipated that these buyers, who are among the most sensitive to increases in monthly payments, would gradually adjust to higher mortgage rates, treating them as the new normal to some degree. That adjustment hasn’t happened.
“We thought that buyers would show up, just understanding that it’s the new normal, but they have not. We’ve pushed incentives and rate buydowns, and that has had some positive effects, but not to the velocity that we were expecting,” Su said.
According to Su, demand may have weakened a bit more through August and September, remaining volatile.
“I think it’s been a little more choppy, and I think it’s kind of dropped off as inflation has increased and gas prices have increased. There’s certainly a little more uncertainty and uneasiness in the marketplace over the last month,” he explained.
On the other hand, Bridge Tower Group’s build-to-rent (BTR) vertical, Bridge Tower Homes, is performing better in comparison, with high occupancy rates. Su credited this to the more central infill and “second-ring” locations the firm targets for its BTR communities.
“Communities that are infill or within the second ring are performing as expected,” Su explained.
However, even buyers that are far less sensitive to changes in interest rates and higher payments are feeling the squeeze. Jeff McQueen, President of Trilogy by Shea Homes, said that “there’s a little bit more hesitation now”, even among highly resilient and equity-rich active adult buyers.
“Business has been steady, but it has softened a bit during the Iran war,” he said. “But not nearly to the extent that the interest-rate-sensitive, entry-level housing segment has slowed down.”
Renting remains cheaper than buying
Rising mortgage rates are only one piece of a much larger problem — according to NAHB, nearly 75% of U.S. households can’t afford a median-priced new home.
Buying a home also remains far more expensive than renting. A Zillow analysis released on Wednesday found that the typical renter paid $1,066 less per month, or nearly $13,000 less per year, than the typical homebuyer. The savings are most prominent in high-cost coastal markets like Silicon Valley, but renters pay less than buyers in every major market that Zillow analyzed.
“When mortgage costs are running hundreds of dollars more per month than rent, renters who are intentional about saving and investing the difference are often making a sound financial decision,” Mischa Fisher, chief economist at Zillow, said in a statement.
This disparity between renting and buying can at least partially explain why prospective buyers, particularly those at lower price points, remain so hesitant. Consumers who want to buy may delay that decision and choose to rent until the value proposition between renting and buying more closely aligns.
Solving the affordability equation
While people want to buy, today’s affordability equation is daunting would-be new-home buyers. Public homebuilding executives, during earnings calls in August, noted this dilemma.
Executives from LGI Homes, primarily an entry-level homebuilder, argued during their Q2 2026 earnings call that, while buyers aren’t necessarily walking away from homeownership, they’re taking longer to reach that point.
Notably, the builder’s cancellation rate jumped to 49.4% from 32.7% last quarter. During the earnings call, LGI Homes CFO Charles Merdian noted that the rise in cancellations was “driven by a wider pool of buyers needing more time to get across the finish line.”
During their Q2 2026 earnings call in August, Smith Douglas Homes executives struck a similar tone. The builder’s CEO Greg Bennett noted that “demand’s there. It’s just solving affordability.”
For Smith Douglas Homes, solving affordability meant increasing financial incentives as mortgage rates climbed. The builder relied on tools such as mortgage rate buydowns and closing cost assistance to keep monthly payments within reach. Sales remained resilient, with net new orders up 34% year over year and closings rising 25%. However, the added incentives weighed on profitability, with margins declining from 23.2% a year earlier to 17.6% last quarter.
Ara Hovnanian, Chairman and CEO of Hovnanian Enterprises, during a Q3 2026 earnings call, agreed that interest from buyers remains strong, but converting that interest into sales remains challenging.
“We continue to believe that there is meaningful underlying demand for housing. Consumers are visiting communities and shopping for new homes. The challenge remains converting that interest into contracts,” Hovnanian said, noting that buyers are “highly sensitive to changes in affordability and overall news and confidence.”
During a Q3 2026 earnings call, Toll Brothers Executive Chairman Douglas Yearley noted that “the overall sales environment remained subdued with low consumer confidence and elevated mortgage rates continuing to weigh on demand.”
However, with an average sales price of roughly $1 million, Toll Brothers’ buyers are “less affected by affordability challenges due to higher income levels, substantial existing home equity and sizable stock portfolios,” Yearley said.
