Home Price Cuts Slow as Housing Market Takes a Turn

Home builders are stepping back from cuts in prices as a way to attract buyers, buoyed by confidence that declining mortgage rates will boost the housing market, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

For the fourth month in a row, builder confidence went up and at 51 in March was the highest level since July 2023. Part of the reason that they are feeling bullish about the housing market is due to an increase in demand.

"Buyer demand remains brisk and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year," Carl Harris, NAHB chairman—and a home builder himself—from Wichita, Kansas, said in a statement.

Mortgage rates hit a peak of 8 percent in the fall of 2023, but have trended down towards the end of the year. And while they have ticked up again, last week Freddie Mac pointed out that the 30-year fixed rate had declined for another week to a little over 6.7 percent.

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The NAHB suggested that falling rates and anticipation of further declines, as expectations that policymakers are set to bring down borrowing costs at some point in 2024, will spark more activity in the market.

"With the Federal Reserve expected to announce future rate cuts in the second half of 2024, lower financing costs will draw many prospective buyers into the market," NAHB chief economist Robert Dietz said in a statement.

Read more: What Is the Federal Reserve?

The anticipation of more buyers ready to explore opportunities to own homes has made builders pull back on slashing prices, a strategy they deployed in the past to spark sales.

In March, about 24 percent of builders said they reduced prices, the lowest number seen since July 2023, and down from 36 percent from December. But builders are still using this tactic to attract buyers, the NAHB said, with the average staying at 6 percent in March for the ninth consecutive month.

But builders were not without challenges. They are struggling to secure land to construct new homes, find enough workers and grappling with higher costs in the sector.

"Even though there is strong pent-up demand, builders continue to face several supply-side challenges, including a scarcity of buildable lots and skilled labor, and new restrictive codes that continue to increase the cost of building homes," Harris said.

More demand for building, may contribute to a jump in prices for key products.

"As home building activity picks up, builders will likely grapple with rising material prices, particularly for lumber," Dietz said.