Builders are giving up and going home

Somewhere between the Fed’s latest rate hike and mortgage rates flirting with 7%, a bunch of homebuilders quietly rolled up their blueprints and waved a white flag of defeat.

According to the National Association of Home Builders, 38% of builders slashed prices on new homes in September, up from 35% in August—the highest proportion in eight months. While the average discount held steady at 6%, builders are throwing in everything but the kitchen sink to close deals: Two-thirds offered incentives like mortgage-rate buydowns or free appliance upgrades.

Builders are also building less. Housing starts fell 2.6% in August to 1.275 million, falling short of the 4.9% increase economists had expected. NAHB Chairman Bill Owens blamed not only high mortgage rates, but the federal immigration crackdown scaring off workers from showing up to job sites.

Not surprisingly, with builders building less and earning less, morale is in the toilet. Builder confidence sank to its lowest point in a year, according to the NAHB.

Constructing crisis

Lennar, which released its Q3 earnings the same day the Fed raised rates this week, added to the pain: The construction giant posted profits of $283.9 million, down more than 50% from a year earlier. The company also cut its full-year delivery target yet again, this time to a range of 80,000 to 81,000 homes—below both its own previous guidance and analysts’ expectations.

“Consumer confidence has declined as rates and affordability have driven more consumers to slow their purchase decisions,” CEO Stuart Miller said, adding that the typical homebuyer is now spending well above the recommended 30% maximum of their income on a home. Many are “clearly stretching.”

Lennar isn’t the only builder on shaky ground. In July, America’s biggest homebuilder, D.R. Horton, trimmed its revenue outlook for the fiscal year to a range of $32.5 billion to $33 billion, which was below forecasts. Cautious buyers weren’t the only culprit; rising construction costs from stubborn inflation and tariffs on key materials hurt too.

With another Fed rate hike likely in the cards before the end of the year, the housing market may not offer relief to builders or regular home sellers any time soon. Redfin found that the number of listings for sale has soared to a seven-year high. There were 58% more sellers than buyers in the market in August—the widest spread since the firm started tracking this metric in 2013.

The one silver lining? For the rare lucky homebuyers who can stomach today’s high mortgage rates or sidestep them entirely by paying all cash, it’s a buyer’s market bonanza. “With sellers piling into the market and demand falling flat, today’s house hunters can afford to be choosy,” said Redfin senior economist Asad Khan.

Hey, at least someone’s having fun touring open houses—and walking away with free waterfall countertops thrown in.—JD