US homebuilder sentiment plummeted to its lowest level in a year this September, according to the National Association of Home Builders/Wells Fargo Housing Market Index. The index dropped three points to 32, a figure last seen in September 2025. This decline was largely attributed to surging mortgage rates, with the 30-year fixed mortgage rate reaching a more than one-year high of 6.76% last week, up from 6.71% the prior week.
Economists had anticipated a milder dip, forecasting the index to ease to 34. However, weakening buyer traffic across the country, primarily driven by these higher rates, contributed to the sharper decline. Builders are also contending with persistent labor shortages, partly due to immigration crackdowns, and rising material costs, exacerbated by tariffs on imports and increased gas and diesel prices. Tight lending conditions and elevated land costs further weigh on builder confidence.
In response to the dampened demand, a growing number of builders are resorting to price reductions and sales incentives. Approximately 38% of builders cut prices in September, up from 35% in August, marking the highest share in eight months. The average price cut remained at 6%. Additionally, 66% of builders employed sales incentives, such as mortgage-rate buydowns or free upgrades like appliances, to stimulate sales. For instance, Lennar in San Antonio, Texas, offered a promotional mortgage rate as low as 3.5% for an initial period.
Despite these efforts, profitability is taking a hit. For example, Smith Douglas Homes saw its margins decline from 23.2% a year earlier to 17.6% last quarter due to increased incentives. Industry leaders like Ara Hovnanian, Chairman and CEO of Hovnanian Enterprises, acknowledge strong buyer interest but find converting that interest into sales increasingly challenging. The affordability gap is also widening, with nearly 75% of US households unable to afford a median-priced new home, and renting being significantly cheaper than buying in every major market analyzed by Zillow.
Single-family housing starts did see a rebound in August, jumping 7.6% to an annual rate of 918,000 units, and were up 5.2% year-over-year. However, a concurrent drop in building permits for future construction suggests this improvement may be temporary, as rising inflation and ongoing geopolitical conflicts in the Middle East continue to push mortgage rates higher.
