Builder confidence in the new single-family home market declined at the start of 2026, as persistent affordability concerns continue to dampen buyer enthusiasm despite some positive movement in mortgage rates.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell two points, to 37, in January, reflecting ongoing challenges in the lower and mid-range housing segments, according to the report released Jan. 16.
“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, N.C. “Buyers are concerned about high home prices and mortgage rates, with down payments particularly challenging given elevated price to income ratios.”
Mortgage rates show improvement
Despite the decline in builder sentiment, there was encouraging news on the mortgage front.
“In a positive development, Freddie Mac reported that the average mortgage rate fell to 6.06% as of Jan. 15, the lowest rate in three years, and nearly 100 basis points below the same period last year,” said NAHB Chief Economist Robert Dietz.
Additionally, the president, along with Bill Pulte, director of the Federal Housing and Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac have plans to purchase $200 billion in mortgage-backed securities aimed at further reducing mortgage rates.
However, most responses to the January HMI survey were collected before this announcement, meaning its impact on builder sentiment is yet to be reflected.
Supply-side pressures mount
Dietz noted that builders continue to face significant supply-side headwinds that are constraining the market.
“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,” he noted.
The survey’s future sales index fell three points, to 49, dropping below the breakeven point of 50 where more builders view conditions as good rather than poor.
Price cuts and incentives remain elevated
Market challenges are evident in builders’ continued reliance on price reductions and sales incentives. In January, 40% of builders reported cutting prices—unchanged from December—but the third consecutive month the share has been at 40% or higher since May 2020.
The average price reduction increased to 6% in January, up from 5% in December. Meanwhile, 65% of builders offered sales incentives, marking the 10th consecutive month this figure has exceeded 60%.
Regional performance mixed
The three-month moving averages for regional HMI scores showed varied performance across the country. The Northeast fell two points to 45, while the Midwest held steady at 43. The South dropped one point to 35, and the West gained one point to 35.
All three HMI subindices declined in January. The index measuring current sales conditions fell one point to 41, while the gauge tracking 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.
