After a tough 2025, small signs of builder optimism emerge entering 2026
At the end of what has been a tough year for builder confidence, Monday’s latest report shows some signs of optimism heading into 2026.
Despite continued issues with elevated construction costs, tariff pressure, economic uncertainty, and affordability challenges that are scaring off potential buyers, builder confidence improved slightly in December.
According to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), confidence among builders of newly constructed single-family homes rose by one point to 39 in December.
That still leaves sentiment below the neutral mark of 50, where positive and negative views are balanced. Builder confidence remained below neutral for the entire year and hovered in the high 30s for the final quarter of the year.
Buddy Hughes, NAHB chairman and a homebuilder from Lexington, NC, said headwinds continue to hold back the building sector, forcing builders to keep offering incentives.
“Market conditions remain challenging with two-thirds of builders reporting they are offering incentives to move buyers off the fence,” Hughes said. “Meanwhile, builders are contending with rising material and labor prices, as tariffs are having serious repercussions on construction costs.”
Robert Dietz, NAHB's chief economist, said despite market challenges, some positive signs are emerging.
“In positive signs for the market, builders report that future sales expectations have been above the key breakeven level of 50 for the past three months, and the recent easing of monetary policy should help builder loan conditions at the start of 2026,” Dietz said. “However, builders continue to face supply-side headwinds, as regulatory costs and material prices remain stubbornly high. Rising inventory also has increased competition for newly built homes.”
Incentives at a post-pandemic high
The reliance on incentives underscores just how cautious buyers remain. While mortgage rates have eased from their recent peaks, many households are still priced out by high home values and overall cost-of-living pressures, forcing builders to cut prices or sweeten deals to get transactions across the finish line.
Sales incentives reached their highest level in the post-pandemic market in December, with 67% of builders reporting using some form of sales incentive. That’s the highest share in the post-COVID era, indicating that promotional strategies remain a key tool for propping up demand.
The latest HMI survey highlights just how widespread discounting has become. In December, 40% of builders said they reduced prices, slightly down from 41% in November. It marks the second straight month the share has reached 40% or more, a threshold not seen on a sustained basis since May 2020.
The typical price cut in December was about 5%, slightly less than the 6% average reduction reported in November.
In December, the index tracking current sales conditions rose one point to 42. The component for expected sales over the next six months increased by one point to 52, remaining in positive territory and reflecting builders’ guarded optimism about 2026.
The gauge of prospective buyer traffic held at 26, underscoring the limited flow of shoppers walking through sales centers and model homes.
Regional breakdown
The three-month moving averages for regional HMI readings were mixed. In the Northeast, builder sentiment slipped by one point to 47, keeping that region the closest to positive territory.
Confidence in the Midwest edged up two points to 43, while the South also advanced two points, reaching 36. The West posted the biggest gain, rising four points to 34, but still lagged other parts of the country.
Zack Simkins, Managing Director at Vaster, predicts that repricing and competition will reshape Miami’s condo market in 2026, creating opportunities for brokers and investors amid unfinished projects and shifting valuations. https://t.co/AV47uqFSdf
— Mortgage Professional America Magazine (@MPAMagazineUS) December 12, 2025
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.”
These components are then converted into a seasonally adjusted index. A reading above 50 means more builders see conditions as good than poor, while a number below 50 indicates net pessimism about the market.
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