Builders Are Dropping Prices and Offering Incentives, but Not Like They Did During the 2007-2008 Crisis

According to analysis by the National Association of Home Builders (NAHB) of its NAHB/Wells Fargo Housing Market Index (HMI), in November 2022, 36% of single-family home builders reported reducing their prices and 59% were offering special sales inducements. The NAHB says that while these percentages appear relatively high—and in fact they have increased significantly since July of this year—they are nowhere near as high as they were during the 2007-2008 financial crisis.

In July 2022, 13% of builders reported that they had reduced home prices during the past month in order to bolster sales volume and/or limit cancelations. In August, the number of builders reporting home price reductions increased to 19%, and it rose to 26% in September and 36% in November. However, while 36% is a lofty percentage, in pales when compared to May 2007 through March 2008, when the share of builders cutting prices was consistently 48% or higher—going as high as 59% in October 2007.

It is worth noting that among the builders who did choose to reduce their home prices, the average price reduction was 5% in July 2022 and 6% in the three HMI surveys conducted since. Again, in comparison, in the 2007-2008 period, the average monthly house price reduction was consistently 7% or higher—and as high as 10% in February 2008.

Finally, in November 2022, there were five specific types of sales incentives that were particularly common, several of them directly related to housing finance. They included discounting the home’s price/reducing margins, paying closing costs or fees, options or upgrades at no or a reduced cost, mortgage rate buy-downs, and absorbing financing points for the buyers.