Homebuilder Sentiment Weakens as Incentives Hit Post-COVID High: What It Means for Buyers

A significant slowdown in the new construction market is creating unprecedented opportunities for homebuyers. According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence remains low, leading to the highest use of sales incentives since the COVID-19 pandemic began. For buyers, this means increased negotiating power, with a record 66% of builders now offering discounts, mortgage rate buydowns, and other perks to attract sales.

What Does Weak Homebuilder Sentiment Mean for Buyers? The NAHB/Wells Fargo HMI is a key measure of builder confidence. A reading below 50 indicates that more builders view market conditions as poor rather than good. In August, the index registered at 32, reflecting persistent concerns about affordability and buyer demand. This pessimism directly benefits prospective homeowners. Builders are motivated to sell, making them more amenable to negotiation. The data suggests that the price gap between new and existing homes is narrowing, with a recent analysis showing the premium for new construction fell to a record low of 7.8% in Q2 2025.

What Incentives Are Builders Offering? Faced with reluctant buyers, builders are deploying a wide array of incentives. A mortgage rate buydown, where the builder pays an upfront fee to reduce the buyer's mortgage interest rate for the initial years of the loan, is a common tactic. In August, the use of all incentives, including discounts and closing cost assistance, rose to 66%, the highest level in at least five years. Furthermore, 37% of builders reported cutting prices, with the average reduction holding steady at 5%. Based on our experience assessment, buyers should explicitly ask builders about available incentives, as they are not always advertised upfront.

Why Is Affordability the Central Challenge? The primary obstacle for the housing market is affordability, driven by a combination of elevated home prices and mortgage rates. NAHB Chairman Buddy Hughes identified this as the "top challenge," with many buyers waiting for financing costs to decrease. Although rates briefly dipped to a 10-month low of 6.58% in August, uncertainty around the Federal Reserve's policy has kept them volatile. This affordability squeeze has resulted in weak sales traffic, with the HMI component measuring buyer foot traffic remaining at a low level of 22, despite a slight increase.

What Is the Regional and Future Outlook? Market conditions vary significantly by region. On a three-month rolling average, builder sentiment declined in the Northeast (44), South (29), and West (24), while the Midwest saw a slight improvement (42). Looking ahead, the market's direction is heavily tied to monetary policy. NAHB Chief Economist Robert Dietz argues that the Federal Reserve should consider the struggling housing market when deciding on interest rates, as lower financing costs for construction could indirectly help ease mortgage rates. However, recent inflationary pressures have complicated the outlook for near-term rate cuts.

Key Takeaways for Homebuyers in the Current Market For those considering a new construction home, the current climate offers a unique window for negotiation. The high prevalence of incentives means you have more leverage than in recent years.

• Negotiate Beyond the Sticker Price: Focus on the total cost of ownership. A lower sales price is beneficial, but a mortgage rate buydown can yield substantial long-term savings by lowering your monthly payment.
• Compare New and Existing Homes: The gap in median listing prices has narrowed. The median new home price was $450,797 in Q2 2025, compared to $418,300 for an existing home. Weigh the benefits of a new home (modern features, fewer immediate repairs) against the cost difference.
• Stay Informed on Economic Trends: Monitor announcements from the Federal Reserve, as shifts in monetary policy can quickly impact mortgage rates and, consequently, your purchasing power.