Higher mortgage rates and affordability pressures have shaped buyer demand. New data from the National Association of Home Builders showed incentives remained elevated for the 14th straight month.
Builder confidence improved modestly in May, but builders are still relying heavily on incentives and price adjustments to keep buyers moving as higher mortgage rates and affordability pressures continue.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index rose three points to 37 in May. Buyer traffic and future sales expectations also posted gains, suggesting some shoppers who had delayed decisions earlier this year may be returning to the market.
At the same time, builders continue adjusting to buyer sensitivity around monthly costs and financing.
According to the NAHB:
32% of builders reported cutting prices in May. The average price reduction increased to 6%; 61% of builders used sales incentives, marking the 14th straight month that incentives remained above 60%. Builder sentiment in the South held steady at 35. Builders cited elevated mortgage rates, rising costs and broader economic uncertainty as ongoing challenges for demand.
The continued use of incentives suggests affordability remains a major factor in buyer decision-making, even as spring activity improves in some markets. In many areas, buyers continue weighing financing costs, upfront expenses and move-in readiness more carefully than they did during the pandemic-era buying frenzy.
NAHB Chief Economist Robert Dietz said recent increases in long-term interest rates are expected to continue limiting buyer demand, though some regional markets are showing relative strength.
While builder confidence improved from April levels, the index remains below the benchmark of 50, meaning more builders still view conditions as poor rather than good.
