In recent weeks, there has been anecdotal evidence about builders lowering home prices in the wake of the COVID-19 pandemic, but the latest NAHB/Wells Fargo Housing Market Index (HMI) survey provides factual data: Nationally, about 22% of builders cut home prices in April 2020 in order to bolster sales and/or limit cancellations.
Regionally, builders in the South (26%) and Midwest (23%) were the most likely to have reduced prices, compared with much smaller shares in the West (13%) and Northeast (12%).
Historically, the 22% of builders reducing home prices in April 2020 is less than half the share who cut prices during the last housing recession: 52% in May 2007 and 49% in March 2008 (Figure 1).
Builders who did reduce home prices in April 2020 cut them by an average of 5%. That discount is smaller than the average price cuts in both May 2007 (7%) and March 2008 (8%).
Only 12% of builders think price discounts are “very effective” in bolstering sales/limiting cancellations. A majority of builders — 58% — believe they are “somewhat effective,” and 17% report they are “not at all effective.” The remaining 13% are not sure about the effectiveness of home price reductions.
NAHB economist Rose Quint provides additional analysis in this Eye on Housing blog post.