Single-Family Home Builders NAICS 236115

May 9, 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. Soft demand for new homes is expected to worsen as the effects of tariffs take hold, potentially adding between $5,000 and $15,000 to the cost of a new home.
• 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 gradually improve, rising 3% in 2026, 4% in 2027, 5% in 2028, and 6% in 2029.
• Higher home prices could weaken demand for new homes, as a lack of affordability was a significant headwind for the US housing market before tariffs added additional uncertainty. On April 9, the Trump administration paused its reciprocal tariff agenda for 90 days for most countries but left in place a baseline 10% import duty on all countries except China, which faces total tariffs of 145%. Canada and Mexico are not subject to the new 10% baseline tariffs, and goods trading under the US-Mexico-Canada Agreement will remain duty-free. Key home-building materials, including gypsum from Mexico and Canadian lumber, avoided additional levies. However, tariffs are expected to increase prices for other housing inputs, including steel, aluminum, copper, and home appliances.