More U.S. home builders reported cutting prices in September as new-home sales sentiment ratcheted lower to close out the third quarter.

The National Association of Home Builders (NAHB) and Wells Fargo updated their jointly developed Housing Market Index (HMI) on Wednesday, showing sharp declines in home builder confidence this month as sales conditions deteriorated for newly built single-family homes.

The seasonally adjusted HMI fell three points to 32, its lowest level since last September. The component index tracking current sales conditions dipped four points to 35 and the index gauging six-month sales expectations fell six points to 37. The index gauging prospective buyer traffic held steady at 23.

Measured on a scale of 0 to 100, the HMI divides majority positive and negative market sentiment at 50. The index has not crossed into positive territory since April 2024.

Amid slow sales and large builder backlogs, single-family housing starts declined to their lowest level since 2022 in July, according to the latest government data.

New-home sales in July, meanwhile, hit their second-slowest pace in the past four years as higher mortgage rates and economic uncertainty continue to weigh on homebuyers.

Challenging conditions

In a market analysis published Wednesday after the HMI update, Robert Dietz, chief economist at the NAHB, restated the array of persistent pressures dragging down new-home sales and undercutting new construction activity in 2026.

“Higher mortgage rates, worsening labor shortages and rising material costs are weighing on builder sentiment,” said Dietz.

The U.S. Census Bureau is scheduled to publish official starts and permitting estimates for August on Thursday, with last month’s new-home sales data due out next week.

Average mortgage rates for typical 30-year home loans climbed higher in August, hovering near 6.8% throughout the month, according to Mortgage Bankers Association (MBA) data.

As a consequence, mortgage application volumes for new-home purchases declined for the fifth consecutive month in August, the MBA said Tuesday, accompanying projections that new-home sales fell 3.7% from July to August.

With average mortgage rates now pushing 7% in the second week of September, builders are confronting even less favorable conditions for borrowers this fall than over the summer. Underscoring the decline in six-month sales outlooks, neither Fannie Mae nor the MBA expect 30-year rates to fall below 6.7% before the end of 2027.

“Builders also continue to face higher material costs, rising gas and diesel prices and persistent labor shortages,” noted Dietz.

Mounting pressure on builder profit margins led 38% of NAHB survey respondents to report cutting prices in September, up from 35% in August. Two-thirds of respondents reported using sales incentives in September, the highest share since December and up from 63% in August.

Large builders continue to heavily deploy builder-paid mortgage rate buydowns as a sales incentive that enables new-home buyers to secure below-market rates.

These forward commitment deals with independent mortgage banks have surged in popularity over the past few years, allowing builders to prop up sales amid the slowdown in demand, instead of resorting to broader new-home price cuts.