Major homebuilders say mortgage rates, rising resale inventory and consumer uncertainty have intensified in recent months, further weakening an already soft new-home market.
Executives at KB Home, the nation's seventh-largest homebuilder, said Tuesday during the company's third-quarter earnings call that prospective buyers have become even more cautious over the past three months due to economic and financial concerns. Such caution could benefit apartment owners as renters potentially stay put longer rather than buying.
Affordability constraints and economic uncertainty have weighed on the new-home market, compressing builder profit margins and contributing to declines in housing starts, according to recent earnings reports and commentary from some of the country's largest builders.
Both KB Home and Lennar said in their latest earnings reports that affordability challenges have worsened for prospective home buyers, putting additional pressure on builder profits.
“We saw more caution among prospective buyers, with many moving to the sidelines,” KB Home CEO Rob McGibney said on Tuesday’s call. “As a result, while sales in June were resilient and slightly ahead of May, sales softened sequentially in July and August, resulting in a year-over-year decline in net orders.”
KB Home reported a 20% decline in revenue from a year earlier and a gross profit margin of 16.5%, down 1.7 percentage points. The builder delivered 19% fewer homes than a year ago, while traffic from prospective buyers fell 10%.
The company delivered nearly 13,000 homes last year across 49 markets in nine states. Leadership said deliveries this year will likely be about 2,000 fewer than in 2025.
Lennar, the country's second-largest builder, echoed KB Home's assessment during its earnings call last week, saying market conditions deteriorated further over the past three months. The company pointed to interest rates, which it said have been influenced by fuel prices. Consumer confidence also remains weak, with the University of Michigan's September reading among the lowest since 2011.
“Interest rates and consumer confidence constrained the improvement we anticipated going into the quarter,” Lennar CEO Stuart Miller said.
Lennar also reported a $3 million operating loss in its multifamily business, underscoring the challenges facing apartment developers even as softer homebuying demand could keep some households in rentals longer.
McGibney said higher fuel costs, inflation and tariffs have increased direct construction expenses, which the builder passes along through surcharges. To offset those pressures, builders such as KB Home are working to shorten construction timelines.
“You've got fuel prices that have gone up. … So, we expect to see that creep into some of our costs on directs and land development as well as we move throughout. And we've also set those up as direct fuel surcharges. So, when and if fuel prices pull back, we can immediately extract those out,” said McGibney.
Despite the challenges, the market may be showing signs of stabilization, according to UBS analyst John Lovallo. In a recent report, he said the 2027 spring selling season could bring a more favorable environment if war and inflation no longer restrain demand.
Resale inventory
Both KB Home and Lennar pointed to rising resale inventory as another challenge. As more existing homes come onto the market and buyers pull back, pricing pressure increases for new homes, McGibney said.
He noted that home prices in high-inventory markets have been “not realistic” in recent years. Today, sellers are moderating prices and becoming “a little less patient and starting to adjust.”
“Resale levels have generally come up. It's becoming more of a formidable competitor than it's been over the last several years, but it really is a market-by-market story,” he said.
Both builders said major markets such as Texas and Florida are experiencing higher levels of resale inventory.
“We certainly have to stay tethered to that with our pricing because it has been and likely always will be one of the biggest competitors that we have out there for our product,” said McGibney.
This story was originally reported by Caroline Broderick for Homes.com News.