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Builder confidence decreased at the start of 2026 as affordability concerns continue to affect buyers and rising construction costs impact builders, according to an analysis from National Association of Home Builders (NAHB).
Builder confidence in the market for newly build single-family homes fell two points to 37 in January according to the NAHB/Wells Fargo Housing Market Index (HMI).
“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors,” says NAHB chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina. “Buyers are concerned about high home prices and mortgage rates, with down payments particularly challenging given elevated price to income ratios.”
Most responses to the January HMI survey were received prior to the announcement that Fannie Mae and Freddie Mac would be purchasing $200 billion in mortgage-backed securities in an effort to bring down mortgage rates.
“The future sales component of the HMI dipped below 50 for the first time since September, indicating that builders continue to face several issues that include labor and lot shortages as well as elevated regulatory and material costs,” says NAHB chief economist Robert Dietz.
The survey also found that 40% of builders reported cutting prices in January, unchanged from December but the third consecutive month the share has been over 40% since May 2020. Meanwhile, the average price reduction was 6% in January, up from the 5% rate in December. The use of sales incentives was 65% in January, marking the 10th consecutive month this share has exceeded 60%.
Derived from a monthly survey that NAHB has been conducting for more than 40 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
All of the HMI subindices fell in January. The HMI index gauging current sales conditions declined one point to 41 and the gauge charting traffic of prospective buyers dropped three points to 23. The index measuring future sales fell three points to 49, marking the first time this component fell below the breakeven point of 50 since September.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell two points to 45, the Midwest held steady at 43, the South dropped one point to 35 and the West gained one point to 35.
