- Builder sentiment rose one point in December to 39 but stayed below the breakeven level of 50 for all of 2025.
- High construction costs, tariffs, and weak affordability are keeping many buyers on the sidelines.
- In December, 67% of builders used buyer incentives, while 40% reduced prices for a second month in a row.
End-of-Year Uptick, But Challenges Persist
Builder confidence rose slightly in December, with the NAHB/Wells Fargo Housing Market Index (HMI) ticking up one point to 39. Despite the modest gain, sentiment stayed in negative territory throughout 2025. This reflects continued uncertainty in the housing market.
Mixed Signals from the Market
NAHB Chairman Buddy Hughes said affordability remains a major challenge. “Two-thirds of builders are offering incentives to move buyers off the fence,” he noted. At the same time, builders are dealing with higher material and labor costs, worsened by ongoing tariffs. The broader housing environment has seen builder sentiment shift frequently in recent months as price cuts, interest rate changes, and buyer hesitancy continue to shape the outlook.
Some builders are more optimistic heading into 2026. Future sales expectations have remained above the breakeven level of 50 for three straight months. Easing monetary policy could also improve lending conditions in the new year.
Buyers Still Hesitant, Price Cuts Continue
Many buyers are delaying purchases due to high costs and economic uncertainty. In December, 40% of builders cut prices—matching November and marking the highest level since mid-2020. The average price cut was 5%, slightly lower than November’s 6%.
Sales incentives were used by 67% of builders in December. That’s the highest level since the post-COVID period.
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HMI Component Breakdown
- Current sales conditions: 42 (+1)
- Future sales expectations: 52 (+1)
- Traffic of prospective buyers: 26 (no change)
Regional Trends
- Northeast: 47 (-1)
- Midwest: 43 (+2)
- South: 36 (+2)
- West: 34 (+4)
Why It Matters
Despite a small year-end boost, builder sentiment remains weak. Regulatory costs, high material prices, and sluggish buyer demand are holding back the market. Rising resale inventory is also creating more competition for new homes.
What’s Next
The next HMI release is scheduled for January 16, 2026. Builders are hopeful that lower rates and improved financing will support demand early next year. However, market headwinds are expected to persist into the new year.
