Slow, challenging, unpredictable, bumpy—these are a few of the keywords builders are using to describe today’s market, stating that, overall, it has not lived up to expectations.
The Q3 Housing Market Forecast from Zonda, presented by Chief Economist Ali Wolf, digs into builder insight that can provide important context into the state of the residential real estate market.
While the webinar primarily focused on the new-home sector, the broader message depicted a housing market that remains uncertain due to shifting consumer behavior, increased pricing pressures and macroeconomic headwinds that are changing how homes are purchased, sold and marketed.
Battling market volatility
Nationally, new-home sales are trending lower than both last year and 2023.
Despite this, according to Zonda’s Market Ranking (ZMR)—which adjusts for seasonality and supply—the national market is at an “average” level. But builder sentiment tells a different story: 80% of surveyed builders reported slower demand, while 50% said it’s slower and “causing concern.”
There were several regional disparities. Markets such as Seattle, San Jose, San Francisco, San Diego, Riverside and Denver, which Zonda has tagged as “Significantly Underperforming,” require builders to resort to incentives to lure buyers. Other markets such as Chicago, Columbus, Cincinnati, Myrtle Beach, Charleston and Port St. Lucie are “Significantly Overperforming.”
The housing market has only gotten increasingly competitive as inventory levels climb in several metros. For example, since 2019, Colorado Springs (+90.7%), Lakeland (+84.9%) and Austin (+69.9%) have all seen significant increases in active listings.
Also read: Housing Inventory Up 32% in May, Easing Listings Crunch in Some Regions
Builders are slowly increasing supply. Though still below 2019 levels, there have been six consecutive months of rising community counts (where there are five or more homes for sale). In heavily regulated markets such as California, inventory remains tight, while in migration hotspots like Florida, new communities are ramping up.
Builders aren’t rushing to the market with new inventory, however. Zonda’s data shows a return to the alignment between starts and closings, which is indicative of a more cautious approach.
“A big lesson learned from past cycles is that you don’t have builders who are rushing to back-fill these homes, so once they have used incentives and price cuts, they’re not going to be as aggressive to start new homes if prices are down,” she said.
Sentiment from builders has been trending negative overall, according to Wolf, who stated that as of June, confidence around starts was split, with 40% believing they will be up and 60% believing they will be down.
According to Zonda’s updated forecast, single-family housing starts will be down 12.1% year-over-year, but Wolf clarified that a decrease in housing starts is traditionally a leading indicator of a broader cooldown in the economy.
This, combined with declining consumer interest—Zonda reports an 8.8% drop in clicks on the New Home Source website—suggests that agents should prepare for a quieter, more competitive market.
Getting buyers to move on a purchase
In a value-minded consumer environment, builders are contending with what Zonda calls an “Incentives Plus” market, which requires even deeper concessions than normally offered. This includes outright price drops rather than just bonuses such as financial or design credits or overall flex dollars.
Also read: Consumer Sentiment Hits Highest Level in Five Months
“There’s nothing new about incentives other than they are more pervasive across projects, and the dollar amount as a percent of home prices continues to rise,” said Wolf.
This trend is evident in data that shows most major markets have experienced declines in new-home prices compared to their peak, including Naples and Jacksonville, which are down 21.9% and 22.3%, respectively. Notably, even strong-performing areas such as Myrtle Beach, where prices are down 11.3% from their peak, are not immune to price erosion.
The takeaway? Today’s pricing strategies must be aggressive. And with buyers aware of builder incentives, resale sellers may have to step up their game to stay competitive.
What does this mean for agents?
While residential real estate agents face an unpredictable market, builder sentiment and insights point to several strategies that could help professionals stand apart from the competition:
- Getting ahead of pricing challenges. Agents can get ahead armed with real-time market insights that lead to more accurate pricing decisions and by providing buyers and sellers with realistic expectations.
- Hopping on the value train. Incentives aren’t just for builders. Agents should consider how negotiations on closing costs or repair credits, or other price adjustments, can help move the needle on a sale.
- Getting more local. Regional and local data sets will always supersede national numbers. While alarming headlines may ring in buyers’ and sellers’ ears, grounding clients with local context can help reshape their perspective.
- Monitor sentiment. Builder pessimism can be an indicator of things to come, so agents should be prepared to adapt to increased volatility.
