Demand may be bouncing back, but the damage from the pandemic may take longer to heal. Nationally, 22 percent of builders reduced their housing prices in April, according to the NAHB/Wells Fargo Housing Market Index survey. With confidence low and the future uncertain, builders slashed home prices to try to entice buyers back into the market, but only 12 percent felt that the reductions were effective. Midwestern and southern builders were most likely to employ this tactic, and the average discount rang in at 5 percent.
The housing market did not escape the pain and contraction experienced by the US economy in April 2020 as a result of the lockdown orders issued by state and local governments to mitigate the effects of the COVID-19 pandemic. Builder confidence posted a historic decline and there were broad declines for housing starts.
In recent weeks, there has been anecdotal evidence about builders lowering home prices, 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).