Residential Building Contractors NAICS 2361

May 16, 2025 - Home Builders Boost Incentives to Lure Wary Buyers

• US home builders are dangling more incentives to close deals amid a tepid spring home-buying season that is halfway over, according to The Wall Street Journal. Builders typically notch 40% of their annual sales during the spring, but mortgage rates that are stuck around 7% and a lack of affordability have reduced demand. Builders have increased incentives to bring buyers off the sidelines, including mortgage-rate buydowns, design upgrades, and price cuts. In the first two weeks of April, incentives offered by builders equaled 7.2% of the purchase price, up from 6.1% in January, according to data from John Burns Research & Consulting. Incentives are eating into builder profits during a season that usually sees few discounts, and prices tend to rise. Weaker homebuilding activity could reduce demand for some types of construction machinery.
• The price gap between new and existing homes is narrowing, according to National Association of Home Builders analysis of US Census Bureau data. In the first quarter of 2025, the median price for a new home was $416,900, only $14,600 more than the median existing home price. In Q1, the median price for a new home declined 2.32% year-over-year; the median price for an existing home rose 3.38% over the same period. The average price difference between new and existing homes over the last five years is $26,700, and over 10 years it’s $66,000. The price gap between new and existing homes has been closing as tight inventories of existing homes have pushed up prices. At the same time, builders have reduced lot and home sizes and offered incentives to attract buyers.

• North American construction and engineering spending on single-family homes in 2025 is expected to grow by 3% after increasing an estimated 7% in 2024, according to FMI’s second-quarter 2025 North American Engineering and Construction Outlook. High interest rates and a lack of affordability are limiting demand for new homes. FMI expects 30-year mortgage rates to remain between 6% and 7% at least through 2026. Meanwhile, affordability is historically low as median new home prices are more than seven times the median US household income. Builder inventories are mounting as some homes go unsold, reaching nine months of supply, which is significantly higher than historical norms. However, single-family homes construction spending is expected to improve gradually, rising 3% in 2026, 4% in 2027, 5% in 2028, and 6% in 2029.
• Multifamily developer confidence declined in the first quarter of 2025, according to the National Association of Home Builders’ (NAHB) latest Multifamily Market Survey. The Multifamily Production Index (MPI) fell three points in Q1 2025 to 44 compared to the first quarter of 2024. The Multifamily Occupancy Index (MOI) decreased by one point to 82 over the same period. An MPI or MOI reading of 50 or more indicates that multifamily production or occupancy, respectively, is growing. Multifamily developers’ headwinds include a tight lending environment, higher borrowing costs, and regulatory difficulties. More than half of multifamily builders surveyed said their suppliers had raised prices in response to announced, enacted, or anticipated tariffs. While multifamily construction activity is expected to remain weak for the remainder of the year, the NAHB projects a modest recovery will take hold in 2026.