Homebuilders have had the upper hand in the housing market. Lower rates may change that.

Homebuilders have benefitted from a lack of housing supply in the existing market for years since the pandemic. Now, their advantage may be withering. Builders over the past few years had been in a hurry to build houses to address the supply shortage in the resale market, as high borrowing costs discouraged homeowners from selling.

But now, inventory of both new and existing homes is finally rising and heating up some competition. “I don't think we're going to be immune to the market as the resale market starts to return and becomes more competitive ..

. we'll have to navigate that just like every other builder,” Phillippe Lord, CEO of Meritage Homes ( ), told investors and analysts on the company's second quarter earnings call in late July. Meritage Homes, the nation's sixth-largest homebuilder, reported total home orders rose 14% from the prior year to 3,799 homes, still lower than analyst expectations of 3,879 orders.

The hesitancy among buyers also pushed builders to cut prices to move inventory. The average sales price on Meritage orders was 6% lower than a year ago due to product and geographic mix shift impacting growth, executives noted. Luxury homebuilders are also coming in light in their order count.

Toll Brothers ( ) this week posted quarterly orders that fell short of analysts’ expectations as house hunters remain cautious even with mortgage rates lower than a year ago. Toll Brothers’ purchase contracts for the three months through July rose by 11% from th.