As builder confidence slumps, NAHB chief economist calls on the Federal Reserve to cut rates to reduce financing costs
A decrease in mortgage rates led to an increase in new home purchase applications in the month of July, while affordability challenges continued to weigh down builder confidence.
Mortgage applications for new home purchases increased 7% in July from the previous month, and 6.8% year over year, according to numbers released Monday by the Mortgage Bankers Association (MBA).
This good news didn’t carry over to builder confidence, as the latest numbers from the National Association of Home Builders (NAHB) showed confidence for newly built single-family homes fell by one point to 32 in August.
Joel Kan, MBA vice president and deputy chief economist, credited a slight decline in mortgage rates as one of the factors to boosting applications.
“Purchase activity for new homes strengthened in July as both mortgage applications and estimated new home sales reached their highest levels since April 2025,” Kan said. “Applications were boosted by borrowers looking to take advantage of slightly lower mortgage rates during the month and higher levels of newly built inventory. This likely helped to improve affordability, as many builders are still offering concessions to buyers. Additionally, the average loan size continued to trend lower.”
Home sales increasing
The MBA report also noted a 2.7% increase in home sales in July from the previous month. Single-family home sales were reported at a seasonally-adjusted rate of 685,000 units in the month.
On an unadjusted basis, there were an estimated 58,000 new home sales in July, a 5.5% increase from June’s numbers.
Conventional loans continued to make up the majority of loans, although just barely. In July, 50.1% of loan applications were conventional. FHA loans made up 35.3%, VA loans were 13.4%, while RHS/USDA loans were 1.2%.
The average loan size decreased in July to $372,745, down from June’s $376,077.
The application increase is the second straight month of increases in the MBA data, and the fourth month out of the last five that saw a surge in applications.
Builder confidence remains low
On the flip side, builder confidence continues to struggle with affordability challenges, as builder sentiment remained in negative territory for the 16th straight month, largely remaining between 32 and 34 on the Housing Market Index (HMI).
Buddy Hughes, NAHB chairman, said homebuyers are still waiting for larger rate drops before moving forward with a new build.
“Affordability continues to be the top challenge for the housing market and buyers are waiting for mortgage rates to drop to move forward,” Hughes said. “Builders are also grappling with supply-side headwinds, including ongoing frustrations with regulatory policies connected to developing land and building homes.”
Robert Dietz, NAHB chief economist, believes it is time for the Federal Reserve to reduce the federal funds rate to help reduce financing costs in the housing market.
“Housing affordability is central to the outlook for economic growth and inflation,” Dietz said. “Given a slowing housing market and other recent economic data, the Fed’s monetary policy committee should return to lowering the federal funds rate, which will reduce financing costs for housing construction and indirectly help mortgage interest rates.”
Two prominent candidates for Federal Reserve chair publicly advocated for aggressive interest rate cuts, aligning with president Donald Trump’s repeated calls for monetary easing. https://t.co/heFLpHRTtK
— Mortgage Professional America Magazine (@MPAMagazineUS) August 15, 2025
The survey also showed that prices continue to come down, as 37% of builders reported cutting prices in August, with the average price reduction being 5%. The use of sales incentives was at an all-time high post-pandemic at 66% in August, up from 62% in July.
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