Builder confidence moved lower to start the year as affordability concerns continue to weigh heavily with buyers, and builders continue to contend with rising construction costs.

Builder confidence in the market for newly built single-family homes fell two points to 37 in January, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.

“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 downpayments particularly challenging given elevated price to income ratios.”

“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.

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 interest rates. And while this latest policy action on the interest rate front was largely not factored in the HMI survey, builders continue to report several supply-side headwinds.

“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,” Dietz noted.

In a further sign of ongoing challenges for the housing market, the latest HMI survey also revealed that 40% of builders reported cutting prices in January, unchanged from December but the third consecutive month the share has been at 40% or higher 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. HMI tables can be found at nahb.org/hmi. More information on housing statistics is also available at Housing Economics PLUS.

Editor’s Note: With the official 2026 release schedule for the Survey of Construction still unavailable from the U.S. Census Bureau, NAHB confirms the HMI for February 2026 will be released on February 17. A schedule for the rest of the year will be available as soon as possible.