Homebuilders Are Cutting Prices at a Record Rate as the Market Stalls

Builder confidence has fallen to its weakest level in more than a decade, and the pressure is now spreading to the companies that sell to them. Whirlpool’s latest earnings report suggests how much worse conditions could become across the housing sector.

Homebuilders are now more downbeat than they have been since June 2012, and an appliance company tied to the housing market has provided a glimpse of what that weakness means for suppliers.

The NAHB/Wells Fargo Housing Market Index fell 3 points to 29 in October, according to a reading released in mid-October. A record 43% of builders lowered prices, the highest share recorded since at least 2020.

After the market closed, Whirlpool (NYSE:WHR | WHR Price Prediction) posted a weak third-quarter update. Its shares ended the session at $26.45, down 5.91%, then dropped another 8.77% after hours to $24.13, below the 52-week low of $25.73.

Homebuilder stocks moved much less. The iShares U.S. Home Construction ETF (BATS:ITB) slipped 0.77% to $89.87, D.R. Horton (NYSE:DHI) declined 0.65% to $146.52, and Lennar (NYSE:LEN) fell 1.11% to $83.98.

Builders are supporting sales with price cuts and incentives, but that comes at the expense of margin. Whirlpool’s results show what can happen farther down the supply chain when fewer homes are sold.

Every Builder Metric Weakened in October

Current sales conditions dropped 2 points to 33, sales expectations fell to 32, and prospective buyer traffic sank to 18. “Buyer traffic has fallen to its lowest level since April 2012,” chief economist Robert Dietz said, while noting that April 2020 is excluded because of the pandemic.

Chairman Bill Owens, a builder from Worthington, Ohio, said mortgage rates had climbed well above 7% in recent weeks. He also said more than one-third of builders reported immigration enforcement activity in their markets, creating a possible labor-supply risk.

The average price cut remained at 6% for the seventh straight month, showing that discounts are reaching more builders even though the size of the cuts has not changed. Incentives were used by 65% of builders, marking the 19th consecutive month at 60% or higher.

On a three-month average basis, the West was the weakest region at 26, while the Midwest led at 40.

Pending home sales fell 7.3% from the prior month and 11.3% from a year earlier, pushing the index to 66.0, a record low. The 30-year fixed mortgage rate averaged 7.32% in the latest weekly reading, down from 7.40% the week before but still well above 6.19% a year earlier.

Whirlpool’s Outlook Cut Shows How Quickly Demand Has Slipped

Net sales declined 8.8% to $3.677 billion from $4.033 billion. Adjusted earnings came to a loss of $0.21 per share, compared with a profit of $2.09 per share a year earlier. On a GAAP basis, the company posted a loss of $3.80 per share, while adjusted EBIT dropped 46.1% to $97 million.

North American sales decreased 8.3% to $2.495 billion amid soft industry demand, although Whirlpool still plans a 7% price increase in that region in the fourth quarter. Raising prices while demand weakens could pressure volume.

Whirlpool now expects about $14.5 billion in sales and an adjusted loss of roughly $1.30 a share. A previous forecast called for about $15.0 billion in sales and adjusted profit of $2.50 to $3.00 per share. That guidance had already been lowered from a prior target of $3 to $3.50 and from an earlier expectation of about $7.

“While the pace of recovery is slower than expected, these actions are setting a clear path for further improvements in 2027,” Chairman and CEO Marc Bitzer said. The company did not directly point to housing as the cause, but appliance demand typically moves with home sales and housing turnover.

Builders Are Facing a Margin Stress Test

D.R. Horton, valued at $40.98 billion, is expected to report before the market opens on Thursday, though the company has not confirmed that timing. Lennar has a market value of $19.98 billion, and ITB’s one-year total return stands at -12.38%.

Incentives can help maintain sales volume, but they also reduce gross margin, and upcoming results will show how much pressure that is creating. The Federal Reserve is set to announce its rate decision, and a recent presidential order targets mortgage insurance and refinance title costs.

Is the Housing Sector Worth Buying Now?

The bullish argument centers on pent-up demand, the possibility of lower rates, and share prices that already reflect a weak housing backdrop. The bearish case points to mortgage rates above 7%, buyer traffic at multi-year lows, margins being squeezed by discounts and incentives, labor disruptions, and elevated gas prices weighing on buyers.

For now, the bearish view appears more convincing. That could change if the weekly 30-year mortgage rate falls back below 7% and D.R. Horton’s upcoming report shows margins holding up despite heavy incentives.