Home Buyer Traffic Falls along with Builder Sentiment
NAHB reports a decline in homebuilder sentiment and they cite high mortgage rates, economic uncertainty and import tariff wars as the cause.
The builder sentiment survey showed a decline of 2 points to 32, the 3rd lowest point in 10 years, and only the second decline since the great recession. New residential home builder stocks have taken a slide, and as you can see Toll Brothers has declined 40% from it’s peak late last winter. Investors aren’t impressed with the earnings outlook for builders. And the outlook for small home builders is worse than the major home builders such as Toll Brothers.
For home sellers, the new home construction slowdown is a boon to the price they demand, and a billowing of listed resale homes on the US housing market doesn’t seem to be affecting the average home price.
With respect to the new report, home builders are not citing supply chain, materials costs or labor issues as important. Many of them are waiting for Trump’s deregulation actions to drop home prices and open the market up to buyers at more affordable prices.
NAHB’s Latest Survey
The survey of America’s home construction companies has a dim look of the market at present.
- Current Sales Conditions: Fell two points to 35, according to NAHB.
- Sales Expectations (next six months): Dropped two points to 40.
- Prospective Buyer Traffic: Declined two points to 21.
- Price Reductions: The average home price reduction was 5% in June while 37% of builders reported cutting prices, the highest percentage since tracking began in 2022.
- Sales Incentives: 62% of builders used sales incentives, up one point from May.
More Buyers Pulling out of Offers, and Mortgage Applications are Down
Builder Application Survey (BAS) data for May 2025 shows mortgage applications for new home purchases decreased 4.5% vs 12 months ago. Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Applications to purchase newly built homes fell to their slowest pace in three months as buyers held off on their purchase decisions.”
For some states, such as Florida, there is risk for a big price correction, but up in the Northeast, there doesn’t seem to be worries as sales and prices are holding up well.
According to MBA, conventional home loans composed 47.3% of loan applications, FHA loans made up 37.8%, RHS/USDA loans composed 1.0% and VA loans composed 13.8% of the market. The average loan amount for new homes increased from $376,992 in April to $379,209 in May.
Chen Zhao, Redfin’s head of economics research, said “It’s a catch-22 for homebuyers. Mortgage rates are unlikely to fall unless all of the new tariffs are eliminated, or if the country falls into a fairly severe recession. But beyond the FED rate, lenders are not in a giving mood. Trump’s tariff transition period might extend further than most believe. Recent comments have him rescinding the tariffs, which is ridiculous. Other countries have made no promises to reduce their trade barriers, and might be looking for Trump to make a mistake on US policy. That’s very unlikely.
New Home Construction May
The latest NAHB report on home starts, out today, shows a very weak new home construction market. The Census Bureau reports that US home building permits dropped to a seasonally adjusted annual rate of 1.393 million in May, the lowest rate in nearly five years. That number is down 2.0% from April and a 1.0% decline compared to one year ago. The forecasted rate was for 1.42 million permits.
In May, single-family building permits decreased 2.7% to a seasonally adjusted annual rate of 0.898 million, the lowest level since April 2023. This was a 6.4% decline from one year ago.
New Home Sales Report for April 2025 (latest report)
Late last month Census.gov released its new home sales reported a rise in sales, inventory in April, but lower price year over year. Month to month, home prices rose 3.7% to $518,400, and year over year were up 3.6%. The median new home price rose .8% to $407,200.
News out of NAR on the April used home sales report showed:
- Existing-home sales lowered 0.5% vs March to a seasonally adjusted annual rate of 4.00 million. Home sales are down 2.0% from one year ago.
- The median existing-home sales price rose 1.8% from April 2024 to $414,000, an all-time high for the month of April and the 22nd consecutive month of year-over-year price increases.
- The inventory of unsold existing homes jumped 9.0% vs March to 1.45 million units at the end of April, or the equivalent of 4.4 months’ supply at the current monthly sales pace.
It’s the picture of a troubled marketplace vacillating between home shortages and surpluses where the real health of the market is difficult to improve. For Realtors and new home sellers, a dream market in the buyer’s favor can’t be accessed since most buyers can’t afford the record prices nor very high mortgage rates, and increased mortgage qualification requirements.
The gap between sellers and buyers is rising, with a buyer-to-seller ratio of 2:1 in some markets like Phoenix, AZ.
NAR’s Chief Economist Lawrence Yun chimed in on the most recent report: “Home sales have been at 75% of normal or pre-pandemic activity for the past three years, even with seven million jobs added to the economy,” said “Pent-up housing demand continues to grow, though not realized. Any meaningful decline in mortgage rates will help release this demand.”
Yet, J Powell and the FED don’t believe the current data means anything, after stating they would be completely data dependent for rate decisions. It seems integrity is no longer required in the Federal Reserve, who are making it up as they go.
The fact homes are being purchased under these extreme conditions is somewhat positive, unless buyers are overleveraged and sticking their necks out. Yet, many Americans have home equity, healthy banks accounts and are well employed. And first time resale home buyers bought 2% more than the previous month.
Redfin expects home prices to decline 1% year over year by the end of 2025, a forecast that aligns with Zillow’s projected 1.4% drop over the same period. This is largely attributed to a rise in housing inventory.
What are the Housing Market Implications for Home Buyers?
Implications for Home Buyers:
- Less Competition, More Negotiation Power – Fewer buyers mean sellers (including builders) may be more willing to offer incentives (e.g., mortgage rate buydowns, price cuts, or free upgrades).
- Potential for Price Stabilization – If demand weakens further, price growth could slow or even decline in some markets, improving affordability.
- Longer Time to Decide – Buyers may have more time to shop around rather than facing bidding wars common in hotter markets.
- Mortgage Rate Volatility – If the Fed cuts rates later in 2024 (as some predict), affordability could improve, but waiting carries risks if rates stay high or prices rebound.
- Fewer New Home Options – If builders pull back further, buyers may see fewer newly constructed homes available, pushing them toward existing homes (where inventory is also tight).
For home buyers, the persistent question of “is the best time to buy” keeps them on edge and paying more attention to housing market macroeconomics. It’s easy to say that today, more buyers are better informed about mortgage rate trends, Realtor negotiation tactics, and offer strategy. You’ll need a talented Realtor to get your winning bid in.
See more on the forecast for current housing market and the outlook for the next 5 years.
