Homebuilders expected a buying rebound that didn’t come.
Home Buyers Are Hiding
The Wall Street Journal reports Builders Are Offering Mortgage-Rate Discounts. Home Buyers Aren’t Biting.
America’s biggest builders are struggling to sell homes even when they offer buyers a 4% mortgage. Their experience suggests rate cuts alone won’t be enough to boost weak sales in the wider housing market.
The number of completed but unsold new homes has reached levels last seen in the summer of 2009, data from the Federal Reserve Bank of St. Louis shows. At the end of last year, builders were confident that sales would recover in 2025 and built tens of thousands of units to have enough supply for the spring-buying season. But demand didn’t pick up, and more homes sat unsold.
They have tried to use sweeteners to shift inventory. D.R. Horton (DHI) which builds roughly one in every seven new homes in the U.S. and has its own financing arm, is offering 3.99% mortgages to buyers. The company has also knocked 3% off its average selling price over the past 12 months and expects to cut prices further in its 2026 fiscal year, which runs through September.
America’s second-largest builder, Lennar (LEN) said it offered buyers incentives worth $64,000 on its average home sale last quarter to meet its sales target. A combination of subsidized mortgages and price cuts on offer from Lennar was equivalent to a 14.3% price reduction. The last time it had to offer home buyers such a deep discount was during the global financial crisis.
Profit margins have taken a hit from the rising cost of these incentives, so builders have decided to slow construction and wait for demand to recover. D.R. Horton only started building 14,600 homes over the three months through September, down 21% from its pace a year ago.
The number of unsold homes on builders’ sites varies a lot by region. The Midwest has no issue. But there is a glut in Texas and Florida, where looser building codes and strong population growth led to a burst of home construction. Markets where builders are struggling tend to be the ones where competition from existing homes is rising and everyone is competing for a small pool of cautious buyers.
But the problem is spreading to surprising places. The average number of finished, unsold new homes per building development in Southern California is five, double the rate this time last year, based on data from John Burns Research & Consulting. A rate of two unsold units per development is considered healthy.
New homes are becoming harder to sell in California for several reasons. Resale inventory is rising, and there has been a sharp pullback by foreign buyers—partly because changes to visa rules are making overseas workers wary of spending big sums of money on a home. The job market, especially for well-paid roles, has also slowed in California, Rick Palacios, director of research at John Burns, adds.
Unsold inventory of new homes is up 130% in Washington, D.C., compared with a year ago. Builders say the government shutdown and federal job losses are making buyers cautious and having an impact on housing demand.
New Homes For Sale By Stage of Construction
I have been discussing the above trends for months. But the last data we have is from August.
New Homes for Sale
- Total: 490,000
- Started Plus Completed: 395,000
- Finished: 124,000
All of the above numbers are the highest since 2008-2009.
I discount the total because it counts homes “for sale” that have not even been started In contrast, started homes represent a commitment. Ans completed homes a really big commitment.
Supply Rising, Demand Isn’t
Consumers are not biting despite huge discounts, including 4 percent mortgages.
Since 4 percent mortgage offers are not doing the trick, optimism on falling rates is more than a bit displaced.
Trump Proposes 50-Year Government-Backed Mortgages
Yesterday, I commented Trump Proposes 50-Year Government-Backed Mortgages, I Propose Something Else
The FHA head said the proposal is a “complete game changer.” Yeah right.
50-year mortgages are for fools.
A reader pointed out that people won’t stay in their house for 50 years. That is correct. But how long will they stay?
After 12 years of payments on a 50-year mortgage very little principle will have been paid back.
Here’s the exact comparison for a $400,000 loan at 6% fixed rate after exactly 12 years (144 monthly payments) on 15-year, 30-year, and 50-year mortgages.
| Term | Monthly P&I Payment | Total Paid After 12 Years | Principal Paid After 12 Years | % of Original Principal Paid | Remaining Balance |
|---|---|---|---|---|---|
| 15-year | $3,375.74 | $486,106 | $305,364 | 76.34% | $94,636 |
| 30-year | $2,398.20 | $345,341 | $134,978 | 33.74% | $265,022 |
| 50-year | $2,063.74 | $297,178 | $66,251 | 16.56% | $333,749 |
