By admin1
Builder confidence rose in May, but 14 straight months of sales incentives signal that affordability pressure has shifted from buyers to builders’ bottom lines.
Homebuilder confidence in the market for newly built single-family homes posted a three-point gain in May, reaching 37 on the NAHB/Wells Fargo Housing Market Index. It is still well below the 50 threshold that separates good conditions from poor ones. The last time it was above 50 was in April 2024, when the number reached 51.
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The slight move upward came alongside a familiar set of headwinds: mortgage rates remain elevated, gas prices are climbing and economic uncertainty tied to the war in Iran is weighing on buyer demand. But the figure getting the most attention from analysts this month isn’t the headline index; it’s the incentives.
From tactic to line item
For the 14th consecutive month, at least 60 percent of builders reported using sales incentives to move homes, according to the Index. That streak has quietly reframed what “builder concessions” mean in today’s market.
“Fourteen consecutive months of incentives mean they are not a tactical response to a soft quarter,” Maor Greenberg, co-founder and CEO of Spacial, told Inman. “They are now a permanent line item in the cost of selling a house.”
The share of builders cutting prices actually fell in May, down to 32 percent from 36 percent in April, but the average price reduction ticked up, from 5 percent to 6 percent. Builders who are cutting are cutting deeper, even as fewer of them reach for that tool first.
“The numbers consistently tell the story that affordability pressure has not gone away,” Greenberg added. “It used to be a problem on the household side, suppressing demand. Now, it’s a problem on the supply side, compressing margins. The incentives are the number to watch. When the market improves, this number will be the first to disappear.”
Not worse isn’t the same as better
All three HMI components rose in May, which NAHB attributed in part to buyers who had been sitting on the sidelines deciding to move in the spring. The index gauging current sales conditions rose three points to 40; the index for future sales rose three points to 45; and traffic of prospective buyers posted a three-point gain to 25, still deeply negative territory.
“The HMI has been below 50 for most of the last three years,” Greenberg said. “The three-point uptick doesn’t really mean anything. It tells us that conditions aren’t worse than before, but it doesn’t mean that conditions have improved.”
NAHB Chief Economist Robert Dietz echoed the caution. “Recent increases for long-term interest rates will continue to hold back homebuyer demand,” Dietz said. He pointed to some regional bright spots, particularly parts of the Midwest, but characterized the overall market as facing “significant affordability challenges.”
Midwest holds, West slides
The regional breakdown reinforces that split. Looking at three-month moving averages, the Midwest gained one point to 43, and the Northeast rose one point to 42. Both regions are above the South, which held flat at 35, and well above the West, which fell a point to 28.
Greenberg tied the West’s persistent underperformance to forces outside the housing market itself. “On the West Coast, there is more sensitivity to tech-sector employment and migration patterns,” he said. “The numbers on the West Coast accurately mirror the state of the tech sector, and for the past few years, the West has been volatile and is still in an uncertain period.”
The problems Congress can’t solve
NAHB Chairman Bill Owens, a homebuilder and remodeler from Worthington, Ohio, pointed to pending legislation as a potential source of relief. He noted that ongoing efforts in the House to modify the 21st Century ROAD to Housing Act “could increase the nation’s housing supply and help ease builder concerns.”
On the cost side, builders are navigating pressures that won’t resolve quickly, regardless of what Congress does. Lot costs, labor availability and permitting timelines are all running long, and Greenberg argues that those constraints are fundamentally different from materials inflation, which at least tends to be cyclical.
“Land entitlement takes years. Five years is typical,” he said. “Labor is even more locked in. Trades depend on immigrant workers, and immigration policies have been unfavorable for the last few years. Permits are taking longer. All of these add up.”
The NAHB / Wells Fargo HMI is derived from a monthly survey the association has conducted for more than 40 years. It gauges builders’ perceptions of current single-family home sales and their sales expectations for the next six months, scoring each component on a seasonally adjusted scale, with 50 as the dividing line between expansion and contraction.
