Although the housing market continues to grapple with a shortage of for-sale inventory, home builders are becoming more cautious about adding new supply. Builders broke ground on fewer homes last month as concerns mounted over rising material costs, elevated mortgage rates and ongoing affordability challenges.
Overall housing starts dropped 15.4% in May from the previous month, driven largely by a sharp monthly pullback in apartment, condos and other multifamily construction. Multifamily was down 40% from last month and 14% from a year ago. Single-family housing starts fell 1.9% last month and were down about 7% from a year ago, the Commerce Department reported Tuesday.
“Elevated mortgage rates, affordability challenges and cautious buyers continue to weigh on demand for new homes,” says Bill Owens, chairman of the National Association of Home Builders. “Builders are offering incentives and cutting prices, but difficult market conditions are still limiting sustained momentum for new construction.”
Indeed, many builders are continuing efforts to attract buyers to the closing table by leaning heavily into incentives such as mortgage rate buydowns, closing-cost assistance or price reductions.
The latest NAHB/Wells Fargo Housing Market Index, released June 15, showed 35% of builders had cut home prices, up from 32% in in the May 18 release. The average price reduction in the June report was 6%. Also, 62% of builders reported using sales incentives such as financing assistance and closing cost credits to attract buyers.
That combination of price cuts and incentives is helping sustain demand even as affordability pressures persist.
“It’s boding very well for buyers, as far as getting favorable interest rates and closing costs concessions, along with a brand new home,” says Cara Ameer, a real estate pro with Coldwell Banker’s Vanguard Realty in Ponte Vedra, Fla., who is also licensed in California. “Some builders, particularly the larger publicly traded ones, have the bandwidth to buy down the interest rate. They’re selling affordability … and that really resonates with buyers.”
Ameer recently worked with a Florida buyer who secured a 4.99% fixed 30-year mortgage along with $20,000 in closing-cost assistance on a newly built home.
For resale buyers, “if you’re competing with a lot of new construction nearby, that can be a significant challenge because these builders are using interest-rate buydowns and incentives that individual sellers are struggling to compete with,” Ameer says.
