Real Estate

New Home Inventory Hits Four-Year Low: Is Now the Time to Pounce on Builder Incentives?

New-home inventory hit a four-year low in August as builders curbed projects, despite rising confidence.

byAndres Castro

October 31, 2025, 12:16 PM

A downward-sloping graph depicts falling house prices with a sign indicating declining interest rates, illustrating the impact on real estate.

As interest rates fall, the housing market faces a challenging period of declining prices. By MDL.

Executive Summary

The share of newly-constructed homes for sale nationwide reached a four-year low in August (26.8%) as builders reduce new projects and existing home inventory increases due to an easing “lock-in effect.”

Buyer cancellations are on the rise (15% in September), and homes are remaining on the market longer, prompting builders to offer incentives like mortgage-rate buydowns to attract buyers amidst tepid demand.

Despite a challenging market with high mortgage rates and economic uncertainty, builder confidence notably increased in October, reaching its highest level since April, and future sales expectations surpassed the breakeven mark.

The Trajectory So Far

The decline in the share of newly-constructed homes for sale stems from homebuilders curbing new projects to offload existing inventory, driven by tepid homebuying demand due to elevated mortgage rates, high home prices, and economic uncertainty. Concurrently, the easing of the “lock-in effect” has increased the supply of existing homes, further reducing new construction’s proportion of the overall market.

Assessing Risk and Value

Investors should assess heightened risk for homebuilders and related sectors, as the declining share of new construction and builders’ pullback on new projects signal reduced future activity and potential revenue headwinds. The market is further challenged by increasing buyer cancellations and longer sales cycles, driven by weakening demand and an easing of the “lock-in effect” that is bringing more existing homes to market, potentially leading to slower price appreciation or downward pressure. While builders are offering incentives to move inventory, impacting profit margins, a cautious uptick in builder confidence suggests an expectation of future market stabilization, possibly presenting selective value opportunities for patient investors anticipating lower mortgage rates.

Expert Predictions and Forecasts

Homebuilders are curbing new construction projects to offload existing inventory, citing slowing demand driven by elevated mortgage rates, high home prices, and economic uncertainty.

Despite the pullback in new starts, builder confidence has seen a notable increase, reaching its highest level since April, possibly due to the effectiveness of incentives in making new homes competitive.

The overall market remains challenging for most buyers, who are waiting for mortgage rates to decrease further, leading to an increase in buyer cancellations and homes staying on the market longer.

The share of newly-constructed homes for sale nationwide reached a four-year low in August, with new builds accounting for 26.8% of single-family homes on the market, according to a Redfin report. This decline comes as homebuilders curb new projects to offload existing inventory, reflecting a 6% year-over-year drop in housing starts and an 8.4% dip in completions for August, as reported by the U.S. Census. Despite these trends, builder confidence saw a notable increase in October, marking its highest level since April.

Market Dynamics Shift

The August figure for new home inventory is down from 28.2% a year prior and 30.6% two years ago. While still higher than the 15% to 20% observed pre-pandemic in 2018 and 2019, the share is shrinking due to a rebound in the supply of existing homes.

The “lock-in effect” for homeowners with ultra-low mortgage rates has begun to ease, leading more Americans to list their properties. This increased supply of existing homes contributes to new construction making up a smaller portion of the overall housing inventory.

Buyer Behavior and Cancellations

Homes are also remaining on the market for longer periods, with a median of 50 days in September, the longest for that month since 2016. Furthermore, buyer cancellations are on the rise, with more than 53,000 home-purchase agreements canceled nationwide in September.

This represents 15% of homes that went under contract, an increase from 13.6% a year earlier. Redfin Premier agents note that factors like buyer’s remorse, concerns about job security, and a market with more sellers than buyers are contributing to these cancellations.

Builder Response to Tepid Demand

In response to slowing demand, many homebuilders are pulling back on new construction. After a surge in building during the pandemic, some are now focusing on selling existing inventory that has accumulated.

Tepid homebuying demand, driven by still-elevated mortgage rates, high home prices, and economic uncertainty, makes starting new projects less financially appealing for builders.

Incentives for New Construction

To attract buyers, many builders are offering incentives such as mortgage-rate buydowns, contributions to closing costs, and new appliances. These offers are particularly prevalent in regions with high new home popularity, including Texas, Utah, and Florida.

While newly built homes often carry a higher sticker price than existing homes, these incentives can make them a more competitive option for buyers. Agents suggest that the current market conditions present an opportune time for those considering new construction.

Builder Confidence Sees Uptick

Despite the challenges, the National Association of Home Builders (NAHB) reported a positive shift in sentiment. The NAHB/Wells Fargo Housing Market Index (HMI) rose five points from September to 37 in October, reaching its highest level since April.

Future sales expectations also surpassed the 50-point breakeven mark for the first time since January. However, NAHB Chairman Buddy Hughes cautioned that the market remains challenging for most buyers, who are waiting for mortgage rates to decrease further.