By Shaina Mishkin

Home builders have pulled back on construction as buyers sit on the sidelines. President Donald Trump wants them to lean back in.

Ramping up construction now could cause home prices to fall -- welcome news for would-be buyers looking for a deal. But, with the supply of new homes for sale still high and buyers still cautious, it might not be the right move for home builders, analysts say.

A drop in home prices "is like releasing a wild animal in the middle of a downtown main street," says Evercore analyst Stephen Kim, who downgraded an array of builders on Tuesday. "It is hard to stop once it gets going, and it will do really irreparable harm."

Trump called for big builders "to start building Homes" in a Sunday social media post. "I'm asking Fannie Mae and Freddie Mac to get Big Homebuilders going and, by so doing, help restore the American Dream!"

The directive comes at a time when a higher-than-normal supply of new homes for sale and the need to discount homes has caused many builders to tamp down on home construction. Lennar co-CEO Stuart Miller in September said the builder would "pull back just a little bit" on volume as incentives and discounts weighed on the company's margins.

The number of new homes for sale is near levels unseen since the 2008-2009 financial crisis, Wedbush analyst Jay McCanless wrote in a Monday report, citing census data. "Building more homes right now is probably not the correct path," he wrote.

"President Trump received a resounding mandate to address America's housing affordability crisis," White House spokesman Kush Desai said in a Monday statement to Barron's in response to a request for more information on the president's plan for housing. The administration is focusing on improving home affordability through deregulation and reducing inflation to lower interest rates, he said.

There's still a long-term shortage of housing, notes Jim Tobin, the National Association of Home Builders' president and CEO. But right now, there's an oversupply due in part to high financing costs and consumer uncertainty. "I expect that builders will slow down production in the second half of this year to allow the inventory that's on there to sell, " he says. "Once we get to equilibrium, I think you'll see the builders re-enter the market."

It's weak demand caused by uncertainty, not supply, that's holding back sales right now, Evercore's Kim wrote. "The housing market is now at a fragile equilibrium, and increasing production will result in falling prices, which is not in anyone's best interests," he wrote.

While first-time home buyers would benefit, home builders and their investors would lose out if prices fell. Nearly four in 10 builders cut prices in September, while roughly two-thirds offered some sort of sales incentive, to keep homes selling, according to the National Association of Home Builders. Such deals and discounts weigh on builders' profit margins and their stocks.

Homeowners, too, could be negatively impacted by falling prices. "You'll have destruction of wealth from the homeowners," says Kim. "It will also prevent them from wanting to trade up, so it will stymie inventory."

Kim suggested in a note that the administration should focus on tightening the spread between mortgage backed securities and Treasury yields, which has been elevated in recent years. "Achieving tighter mortgage spreads would be a big help to homeowners, buyers, and builders, " he wrote.

Housing inventories are tighter in certain markets. The Northeastern states generally have the most pressing shortages, Realtor.com senior economist Jake Krimmel wrote in a Monday note. ( News Corp, which owns Barron's, also owns Move, which operates Realtor.com.)

The Northeast has "the strictest zoning laws, the tightest inventory, and the highest recent house price growth," Krimmel said. "Encouraging new home production in such high-demand and undersupplied markets is the most efficient and effective solution to the supply shortage. Any national policies that could accomplish that would have first-order positive impacts on housing affordability."

Write to Shaina Mishkin at shaina.mishkin@dowjones.com

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October 07, 2025 16:06 ET (20:06 GMT)

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