US homebuilder sentiment unexpectedly weakened in July as elevated mortgage rates and growing economic uncertainty continued to weigh on housing demand, according to a survey released on Thursday.The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell two points to 34 in July from an upwardly revised reading of 36 in June, marking the 15th consecutive month that the index has remained below 40. Economists polled by Reuters had expected the index to remain steady at 35.Builders continue to face weak buyer demand as many prospective homeowners delay purchases while waiting for mortgage rates to ease, inflation to moderate and the economic outlook to become clearer.Mortgage rates are expected to remain elevated following renewed hostilities between the United States and Iran after a fragile ceasefire collapsed last week, according to Reuters, adding another headwind for the housing sector.The survey also showed builders increasingly relying on discounts and incentives to boost sales. The share of builders cutting prices rose to 37% in July from 35% in June, while the average price reduction remained unchanged at 6%.The proportion of builders offering sales incentives edged up to 63% from 62% in June, extending a streak of 16 consecutive months in which at least 60% of builders have used incentives to attract buyers.Homebuilding industry welcomed a recently enacted bipartisan U.S. housing affordability law that includes measures to curb single-family home purchases by large investment firms and expedite environmental reviews for construction projects, a move aimed at increasing housing supply.The survey's gauge of current sales conditions slipped one point to 37, while the measure of expected sales over the next six months fell two points to 43. The index tracking prospective buyer traffic declined two points to 23, underscoring continued weakness in demand.Stock ImpactThe weaker-than-expected sentiment reading could weigh on U.S. homebuilder stocks, including D.R. Horton, Lennar, PulteGroup, NVR, Toll Brothers and KB Home, as persistent affordability challenges and high borrowing costs threaten new home sales and pricing power. Companies with greater exposure to entry-level housing may face continued demand pressures, although expectations of stronger housing supply under the new legislation could provide longer-term support to the sector.