CHM Blog

When belief meets business: Homebuilders cut deeper into profits

“Build it and they will come”… is a line from a baseball movie about a guy who builds a baseball diamond on his farm in hopes that spectres of baseball greats will come to play in a kind of heaven on earth for all to see. It’s a story of belief, hope, and following instincts when those around you are naysayers.

CNBC’s Diana Olick reports that with the real estate market in flux and disarray due to unfathomable prices and high interest rates, the nation’s homebuilders are betting on people showing up, just like the movie suggests. How? They are cutting prices at the highest rate in three years, according to the monthly builder confidence survey from the National Association of Home Builders.

“Builder confidence in July rose 1 point to 33 on the NAHB index, a slight improvement,” says Olick. “Still, anything below 50 is considered negative sentiment. The index stood at 41 last July, and it has been in negative territory now for 15 straight months.”

She says the slight boost this month came from the recently passed budget act, which provided some tax relief for households, home builders and small businesses. This does not pair up with mortgage rates, however, which have been hovering in the same narrow, elevated level for several months.

She quotes NAHB chairman Buddy Hughes: “While this new law should provide economic momentum after a disappointing spring, the housing sector has weakened in 2025 due to poor affordability conditions, particularly from elevated interest rates.”

That’s evidently why 38% of builders said they cut prices in July, the highest share since the NAHB began tracking the metric in 2022. “Just 29% were cutting back in April. The average price reduction was 5% in July, where it has been every month since November,” says Olick.

Builders have been keeping the faith throughout the market turmoil by buying down mortgage rates to help get buyers in the door. This has cut into their margins, but not as much as price cuts, she points out. Real estate analyst Jonathan Woloshin adds, “Should the public builders supplement mortgage rate buydowns with more outright price reductions they would likely experience a larger negative gross margin.”

Olick reports that current sales conditions rose 1 point to 36 and sales expectations in the next six months increased 3 points to 43, while buyer traffic saw a 1 point drop to 20 — the lowest reading since the end of 2022.

NAHB’s chief economist, Robert Dietz, adds, “Single-family housing starts will post a decline in 2025 due to ongoing housing affordability challenges. Single-family permits are down 6% on a year-to-date basis and builder traffic in the HMI is at a more than two-year low.” Regionally, says Olick, builder sentiment was strongest in the Northeast where it rose 2 points, flat in the Midwest and dropped further in the South and West, where it was weakest.

With new home sales perennially remaining the straw that stirs the future of housing, however, let’s hope “Shoeless Joe” Jackson and his buddies appear to keep playing the game.

CNBC, TBWS

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I'm among few mortgage professionals who have access to live trading screens during market hours.

Rates Currently Trending: Neutral

Mortgage rates are getting support today. The MBS market worsened by -10 bps last week. This was not enough to increase mortgage rates or fees. The market experienced high volatility last week.

This Week's Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Central Banks, 2) Geopolitical and 3) Treasury Auction.

1) Central Banks: We will get key interest rate decisions from the People's Bank of China and the European Central Bank.

2) Geopolitical: The constant swirl of Trump versus Powell will continue to dominate the headlines as will any trade/tariff's as the August 1st deadline is fast approaching.

3) Treasury Auction: We have an important 20Y Treasury Bond auction on Wednesday.

The Fed: We will hear from Fed Chair Powell on Tuesday but he is not supposed to be speaking about future policy this close to the July meeting. The Atlanta Fed Business Inflation expectations will get a lot attention on Wednesday.

This Week's Potential Volatility: High

This morning markets have seen some significant support. Volatility has started at high levels and may remain that way due to geopolitical drama.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.

Richard Sardella has been actively managing and providing services in the mortgage industry for over 30 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.

MLO of record MLO.100007700 / NMLS#233568 / CHM NMLS#127716.