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NAHB: Builders turn to price reductions

Home builder price cuts are more prevalent in the South and Midwest.

BY HBSDealer Staff

Research by the National Association of Home Builders (NAHB) points to more builders lowering home prices.

Data from the most recent NAHB/Wells Fargo Housing Market Index (HMI) found that the COVID-19 crisis has pushed roughly 22% of builders to cut home prices in April. According to the NAHB, builders are making the move to boost sales and limit cancellations.

By region, 26% of builders cut prices in the South while 23% went with reductions in the Midwest. The shares are smaller in West and Northeast where just 13% and 12% dropped prices.

But in historical terms, the 22% who lowered their prices in April is less than half who cut prices during the housing recession. Then, 52% shaved prices in May 2007 and 49% in March 2008.

Builders who did reduce home prices in April 2020 cut them by an average of 5%, the NAHB reported. The discount is smaller than the average price cuts in both May 2007 (7%) and March 2008 (8%).

Only 12% of builders think price discounts are “very effective” in bolstering sales/limiting cancellations, according to HMI survey findings. A majority of builders — 58% — believe they are “somewhat effective,” and 17% report they are “not at all effective.” The remaining 13% are not sure about the effectiveness of home price reductions.

The research arrives just days after the NAHB reported that builder confidence showed modest gains in May. 

 

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