In my never-ending pronouncements of how sentiment is self-fulfilling, the housing market—stuck in neutral—is reflecting yet further signs of remaining in a moribund state until the one action that can revive it finally takes place: a lowering of interest rates. In a further sign of declining builder sentiment, the use of price incentives increased sharply in June as the housing market continues to soften.
As has been reported in the business press, builder confidence in the market for newly built single-family homes was 32 in June, down two points from May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The index has only posted a lower reading twice since 2012—in December 2022 when it hit 31 and April 2020 at the start of the pandemic. when it plunged more than 40 points to 30. So June 2025 marked the third lowest reading since 2012, when the construction economy was at its lowest ebb against the backdrop of the Great Recession.
Buyers have increasingly moved to the sidelines due to elevated mortgage rates, as well as tariff and economic uncertainty. Consequently, the latest HMI survey revealed that 37 percent of builders reported cutting prices in June, the highest percentage since NAHB began tracking this figure on a monthly basis in 2022. This compares with 34 percent of builders who reported cutting prices in May and 29 percent in April. Meanwhile, the average price reduction was 5 percent in June, the same as it has been every month since last November. The use of sales incentives was 62 percent in June, up one percentage point from May.
Rising inventory levels and prospective home buyers who are on hold, waiting for affordability conditions to improve, are resulting in weakening price growth in most markets and price declines for resales in a growing number of markets. Given current market conditions, the NAHB is forecasting a decline in single-family starts for 2025.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. This index is such an important indicator, it is one of the metrics we utilize in calculating our firm’s own Pulse Index, a well-known measure of the health of the construction industry we manage for sister publication Rock Products.
All three of the major HMI indices posted losses in June. The HMI index gauging current sales conditions fell two points to a level of 35, the component measuring sales expectations in the next six months dropped two points lower to 40, while the gauge charting traffic of prospective buyers posted a two-point decline to 21, the lowest reading since November 2023.
Housing contract activity has slipped sharply this spring, even though buyers had more inventory to choose from. Meanwhile, buyers and sellers are locked in something of a standoff: more sellers are listing their properties, but prices haven’t fallen much, and buyers are being picky. Mortgage rates aren’t helping, as they have remained remarkably stable this year, hovering between 6.8 percent and 7 percent. Rate stability can be a good thing, because buyers know what to expect when financing, but stability at relatively elevated levels prices many potential buyers out of the market altogether.
What will it take to bring life back to the market? Lower mortgage interest rates would certainly help, but there’s little reason to think they’ll return to 3 percent or 4 percent anytime soon, barring a deep recession. But if there is a silver lining to the current state of residential property, it is that pent-up demand has been building for years now as the housing market takes one of its longest pauses in history. Watch as buyers come flying off the benches when interest rates fall.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers & acquisitions. He has a career spanning almost five decades, and volunteers his time to educating the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at pvillere@allenvillere.com. Follow him on Twitter – @allenvillere.