Why more builder discounts are not unlocking new-home demand

Deteriorating summer sales conditions and stiffening macro-economic headwinds tipped homebuilder confidence to its lowest level in a year, a signal the new home market has not yet found its “bottom.”Underlying the late-summer swoon in confidence about both present- and future selling conditions is a buyer pool that remains cautious and squeezed by affordability pressures, even as many builders continue offering generous incentives to close sales. While few question a pervasive existence of underlying demand and pervasive underbuilding, both private and public homebuilders describe potential buyers, wary of rising mortgage rates and broader economic uncertainty, as idling in a “wait and see” mode. This stall is particularly pronounced among younger, entry-level buyers and the builders that serve them, but is reverberating across the market. Affordability gaps between asking prices and monthly payments, on the one hand, and household income wherewithal remain show-stoppers among buyers. New-home sales prices hit a 5-year low in July, underscoring the ongoing financial strains challenging the homebuilding market. What’s more, the price drops themselves could begin to trigger a “fallin...