Builder sentiment 2026 is beginning the year on softer footing as affordability pressures persist, even as lower mortgage rates, price cuts, and buyer incentives increase negotiating power.

WASHINGTON – Builder confidence declined at the start of the year as affordability challenges continue to weigh on buyers, while builders face ongoing increases in construction and regulatory costs.

Confidence in the market for newly built single-family homes fell two points to a reading of 37 in January, according to the latest National Association of Home Builders (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,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, North Carolina. “Buyers remain concerned about high home prices and mortgage rates, with downpayments especially challenging given elevated price-to-income ratios.”

“In a positive development, Freddie Mac reported that the average mortgage rate declined to 6.06% as of Jan. 15 — the lowest level in three years and nearly 100 basis points below the same period last year,” said NAHB Chief Economist Robert Dietz.

Most responses to the January HMI survey were collected before the announcement that Fannie Mae and Freddie Mac would purchase $200 billion in mortgage-backed securities aimed at easing mortgage interest rates. While this policy action was largely not reflected in survey responses, builders continue to report persistent supply-side constraints.

“The future sales component of the HMI fell below 50 for the first time since September, signaling that builders are still facing challenges such as labor shortages, limited lot availability, and elevated regulatory and material costs,” Dietz noted.

Highlighting continued market strain, the survey showed that 40% of builders reported cutting prices in January. This share was unchanged from December but marked the third consecutive month at or above 40% — a level not seen consistently since May 2020. The average price reduction increased to 6% from 5% in December, while 65% of builders reported using sales incentives, the 10th straight month above 60%.

Based on a monthly survey conducted for more than four decades, the NAHB/Wells Fargo HMI measures builder perceptions of current single-family home sales and expectations for the next six months as “good,” “fair,” or “poor.” Builders also rate prospective buyer traffic as “high,” “average,” or “low,” with the combined data forming a seasonally adjusted index where readings above 50 indicate more positive than negative sentiment.

All major HMI components declined in January. The index measuring current sales conditions dropped one point to 41, while buyer traffic fell three points to 23. The future sales index declined three points to 49, marking its first dip below the breakeven level since September.

On a regional basis using three-month moving averages, builder sentiment in the Northeast declined two points to 45, the Midwest remained steady at 43, the South slipped one point to 35, and the West edged up one point to 35.