U.S. homebuilders are feeling increasingly discouraged about the state of the American housing market, as higher mortgage rates and rising fuel prices keep demand low and new inventory stagnates, forcing them to slash prices and offer sales incentives.
According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence fell three points to 29 in October, the lowest level since June 2012, per NAHB. The survey also found that 43 percent of builders cut prices this month, the highest share during the 2020-2026 period, and that 65 percent of builders reported using sales incentives, marking the 19th straight month of at least 60 percent of builders having done so.
Why Are Home Builders Losing Confidence Now?
The past few years have been tough for U.S. homebuilders, especially in states like Florida and Texas, where a boom in new construction during the pandemic home-buying frenzy was followed by a dramatic cool down in demand when mortgage rates suddenly doubled in 2022.
Much of the inventory added since the end of the health emergency has struggled to find a buyer, as Americans face higher costs across the board and growing economic uncertainty. This supply glut, which has impacted markets in the Sun Belt the most, has caused builders to offer discounts and all kinds of sales incentives to attract reluctant buyers.
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As a result, new homes are now cheaper than old ones for the first time in recent years. According to a Zillow analysis released last month, new homes now sell for a median of $205 per square foot, less than the $212 median for old homes.
An already bad situation—at least for homebuilders—got worse in recent weeks when mortgage rates started climbing again, driven by rising inflation and the Federal Reserve’s decision in September to raise interest rates for the first time in three years.
“Mortgage rates have climbed well above 7 percent in recent weeks, and higher gas prices and inflation have further weakened buyer traffic across much of the country,” NAHB Chairman Bill Owens, a home builder and remodeler from Worthington, Ohio, said in a statement.
As of the week ending October 15, the national 30-year fixed-rate mortgage averaged 7.40 percent, according to Freddie Mac, up from 6.27 percent a year earlier.
Builders are also facing higher costs for construction loans, building materials and diesel, according to Owens. Diesel prices, which have soared since the start of the Iran war in late February, are now at $6.32 per gallon nationwide, according to the American Automobile Association, nearly double what they were a year ago ($3.62).
Both tax-free “dyed” diesel and regular on-the road diesel are used to fuel the heavy machinery used for homebuilding, including excavators, loaders and bulldozers, and delivery and dump trucks that travel on public highways.
The Trump administration’s efforts to lower the cost of diesel, including lifting restrictions on the use of “dyed” diesel on the road, “are helping to ease some of the cost pressures” builders face, according to Owens. But at the same time, the Trump administration’s crackdown on illegal immigration is disrupting the homebuilding sector, which relies heavily on immigrants.
“Nationwide, more than one-third of builders reported immigration enforcement activity in their market areas during the past month, causing construction delays and discouraging legal workers from reporting to work,” Owens said.
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Much-Needed New Home Construction Taking A Step Back
Builders’ dwindling confidence is translating into a slowdown in new construction across the country, as shown by new data released by the U.S. Census Bureau on October 20.
“Starts and completions fell victim to the current building malaise,” Realtor.com senior economist Joel Berner said in a statement shared with Newsweek. “Starts were down 5.2 percent month-over-month and 7.4 percent year-over-year while completions dropped 2.2 percent from last month and 14 percent from last year.”
Single-family home permitting was down 4 percent from August and 4.8 percent from September 2025, while multi-family home permitting grew 5.9 percent month-over-month and 1 percent year-over-year.
“Builders are facing muted demand from homebuyers who are spread thin by mortgage rates, which rose throughout the month, leading to more price cuts and buyer incentives just to get new home inventory moving,” Berner said.
“The market is not conducive to building right now, and the diminished starts and completions figures make that clear. However, the relative resiliency of new home permitting shows that builders see these conditions as temporary.”
Housing starts showed a different pattern, with multi-family projects posting a 7.2 percent decline from August and a 25.9 percent plunge from a year earlier, while single-family starts fell 4.6 percent month-over-month and rose 2.6 percent year-over-year.
“Take the year-over-year single-family starts gain with a grain of salt, as September 2025 was an unusually weak month to use as a point of comparison for single family homes,” Berner said.
“This month’s seasonally adjusted annual rate of new single-family starts was 859,000, well below the 2025 actual figure of 939,700. Housing starts actually picked up in the South, with a 6.1 percent month-over-month gain and an 11 percent year-over-year gain. The South is the region that sees the lion’s share of new construction activity, but softness in the other regions dragged the national figure down.”
What Does This Mean for Homebuyers?
For homebuyers, price discounts and sale incentives mean better deals are available on the market, at least for those who can afford a purchase right now.
“Buyers hold the negotiating power in the new home market and can find some exceptional deals on new homes,” Berner said.
“Mortgage rates are certainly a deterrent for prospective buyers, but our research shows that new home buyers, who often take advantage of reduced rate offerings from builders, pay as much as a full percentage point less on their mortgage,” he added.
The median new home sale price is less than the median existing home sale price, and new construction buyers benefit from a lower total cost of ownership over their time in the home.
“New construction should absolutely be on the radar of any prospective homebuyer,” Berner said.
Newsweek’s reporters and editors used Martyn, our AI assistant, to produce this story. Learn more about Martyn here.
Contact Newsweek editors on this story: John Fitzpatrick and Paul Donnelley.