"June is when many builders will tell you they have seen an inflection in the housing market," Deepa Raghavan, senior equity analyst at Wells Fargo Securities, told Yahoo Finance Live (video above). "Their metrics started going down from June. What we will tell you is July and August, those metrics actually took a turn for the worse. In talking to people on the field, it feels like cancellation rates have spiked tremendously."
With the Federal Reserve hiking interest rates up another 75 basis points and fears of a recession on the horizon, more and more homebuyers have become hesitant about purchasing a new home.
New listings of homes for sale slid 15% in the four weeks ending Aug. 21, marking the biggest decline since the start of the pandemic, Redfin reported. Consequently, that's pushed supply for homes down, as for-sale homes dropped to 0.6% from the previous four-week period.
Sellers are trying boost sales by luring hesitant homebuyers by mortgage rate buydowns, free amenities, and price reductions.
"The builders have just now started to get on the price competition bandwagon," Raghavan said. "Incentives or discounting have increased tremendously... In some communities, builders are incentivizing or discounting to the tune of 15% of list prices. Now in some communities, although it's still at the margins, it could be as high as 25%.
Almost 1 in 4 home builders reported reducing their price this month, up from 19% in August, according to a monthly survey and index from the National Association of Home Builders (NAHB). Home builder confidence fell three points to its lowest level since May 2014.
Still, the median home sales price for an existing house ticked up 7.7% year over year in August to $389,500, though down from the record high of $413,800 in June.
Meanwhile, all four NAHB regions posted a drop in builder confidence. Regionally, the decline was led by the West, which saw a 10-point drop, followed by the South, the index slipped 7 points. The Northeast and Midwest saw a 5-point drop.
Raghavan isn't optimistic that things will improve for homebuyers any time soon, especially due to expectations of more interest rate hikes from the Federal Reserve.
"The buyers definitely have been hurt," Raghavan said. "The mortgage rates are actually trending higher. There's a lot more pressure coming in from the Fed — granted, some of it is priced in. But I don't know how we get to see any respite between now and Super Bowl."
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv