Lower rates were not enough to offset affordability and cost pressures
Homebuilder confidence in the United States new‑home market weakened at the start of 2026, as stretched affordability and stubborn construction costs continued to push buyers to the sidelines and force builders to lean harder on discounts.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index for newly built single‑family homes fell two points to 37 in January, leaving the gauge below the 50 breakeven line for the 21st straight month.
Builders also reported broader use of price cuts and incentives, with 40% saying they reduced prices in January and 65% deploying sales incentives. The average price cut reached 6%, up from 5% in December.
“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid‑range sectors,” NAHB chairman Buddy Hughes, a home builder and developer from Lexington, N.C., said.
“Buyers are concerned about high home prices and mortgage rates, with downpayments particularly challenging given elevated price to income ratios.”
NAHB chief economist Robert Dietz said another key forward‑looking signal has rolled over. “The future sales component of the HMI dipped below 50 for the first time since September, indicating that builders continued to face several issues that include labor and lot shortages as well as elevated regulatory and material costs,” Dietz said.
Rates eased but not enough to unlock demand
In a rare tailwind, Freddie Mac data showed the average 30‑year fixed mortgage rate fell to about 6.06% as of Jan. 15. That's the lowest level in more than three years and almost a full percentage point below a year earlier.
Yet NAHB’s January survey responses largely came in before a new policy move in which Fannie Mae and Freddie Mac were directed by president Donald Trump to purchase $200 billion in mortgage‑backed securities to help drive borrowing costs lower.
Late last year, roughly two‑thirds of builders reported using incentives, while average price reductions hovered around 6% as companies tried to get deals closed in the face of affordability stress. Price cuts and incentives have become increasingly necessary as elevated rates and a growing pipeline of new supply met cautious buyers.
Labor and cost pressures continued to squeeze
Even as demand cooled, chronic labor shortages did not disappear. A recent assessment by Associated Builders and Contractors suggested the US construction industry would need to attract about 349,000 net new workers in 2026 just to replace retirees and maintain capacity.
The HMI’s underlying components pointed in the same direction. The index measuring current sales conditions slipped to 41, the gauge charting traffic of prospective buyers dropped to 23, and the measure of future sales fell to 49, moving back below the neutral 50 threshold.
Regional three‑month moving averages showed sentiment softest in the South and West, at 35, and somewhat firmer in the Northeast and Midwest.
NAHB’s HMI, compiled for more than four decades, is based on a monthly survey of single-family builders. Participants are asked to rate current home sales and expectations for the next six months as “good,” “fair,” or “poor,” and to assess buyer traffic as “high to very high,” “average,” or “low to very low.”
A reading below 50 indicated more builders viewed conditions as poor than good.
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