The mood among American homebuilders just got a little darker. The NAHB/Wells Fargo Housing Market Index fell two points to 35 in June, erasing a modest rebound from May and signaling that the people who actually build houses in this country are not feeling great about the business of selling them.

A reading of 35 is well below the 50 threshold that separates optimism from pessimism. For context, this index hit 90 in late 2020, when pandemic-era interest rates made mortgages feel almost free. It also cratered to 8 during the Great Recession in 2009.

The numbers paint a grim picture

Breaking the index into its components tells you exactly where the pain is concentrated. Current sales conditions dropped two points to 38, meaning builders are watching deals slow in real time.

Sales expectations for the next six months held steady at 45, which is the most optimistic slice of the data. Buyer traffic stayed flat at 25, a notably low reading by any historical standard.

Builders are responding the way you’d expect. Some 35% of them reported cutting prices in June, up from 32% in May, with average reductions running around 6%. Meanwhile, 62% of builders offered sales incentives like mortgage rate buydowns, upgraded finishes, or closing cost assistance.

That 62% figure has now been above 60% for 15 consecutive months. For over a year, a solid majority of builders have felt compelled to sweeten the deal just to get buyers off the fence.

Why builders are struggling

Two forces are squeezing builders from opposite directions. The first is mortgage rates. Elevated borrowing costs have priced out a meaningful chunk of would-be buyers, particularly first-time purchasers who don’t have equity from a previous home sale to cushion the blow.

The second pressure is rising construction costs. Materials, labor, and regulatory compliance expenses have all climbed, eating into builder margins at the exact moment they’re being forced to cut prices and offer incentives.

Geography matters too. The South, typically the engine room of new US housing construction, has seen a particularly sharp pullback in sentiment. That region accounts for a disproportionate share of new home starts, so weakness there ripples through the national data more than a slump in, say, the Northeast would.

What this means for investors

For real estate investors, the price cuts and incentives create a paradox. Builders offering 6% price reductions and throwing in rate buydowns are effectively subsidizing the purchase. On the other hand, buying into a market where sentiment is deteriorating and affordability constraints remain unresolved carries real risk.

The key metric to watch going forward is whether the 50-level remains out of reach. If builders continue to increase price cuts, as the trend from 32% to 35% in just one month suggests they might, it could signal that the new-home market is entering a more aggressive correction phase rather than simply treading water.