Newly built homes are lingering on the market at levels not seen since 2009, presenting a challenge for U.S. home builders struggling to attract buyers.
To move inventory, builders are turning to price cuts and perks, but the affordability crunch continues to weigh heavily on potential homeowners.
With the median price of a new single-family home at $427,000 in December and the 30-year fixed mortgage rate hitting 7.11% as of Jan. 24, the cost of homeownership remains prohibitive for many.
Builders are stuck with what Stephen Stanley, chief economist at Santander U.S., described as “bloated” inventory. December saw the highest number of completed new homes for sale since the 2009 housing downturn.
Builders are responding by cutting prices, a move described as uncharacteristic for the industry.
According to the National Association of Home Builders (NAHB), 30% of builders reduced prices in January, with an average discount of 5%.
Lennar, one of the largest U.S. builders, acknowledged that pricing adjustments are necessary to move homes. Additionally, 61% of builders offered sales incentives last month, including mortgage-rate buydowns and smaller floor plans.
These strategies have shown some success, with new home sales improving in 2024 compared to 2023, as federal data highlighted.
However, the resale market tells a different story, logging its weakest year of sales in three decades. Adding to the pressure, resale home inventory rose 16.2% year-over-year, providing buyers with more options and stiff competition for builders.
Demand, particularly from first-time buyers, remains a bright spot. Builder incentives, such as closing cost assistance and rate buydowns, are helping to make purchases slightly more attainable despite affordability challenges.
Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, cautioned that while these efforts may prop up demand, high mortgage rates and a softening labor market could cap any significant rebound in sales.
For builders, this delicate balancing act between maintaining margins and offloading inventory underscores the broader challenge in the business of real estate—navigating a market where affordability remains the central obstacle.
The coming months will reveal whether these strategies can keep momentum in a market weighed down by steep borrowing costs and rising competition.
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