Homebuilder confidence dips in January despite easing mortgage rates

Homebuilding executives are starting the new year with a downbeat view of the housing market, as buyer hesitancy, shaky consumer confidence, shrinking profit margins and elevated incentives weigh on the industry. 

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)’s builder confidence gauge remained negative with a reading of 37, falling two points from December and down 10 points year-over-year. 

NAHB’s survey notes that 65% of builders reported using sales incentives, the 10th month in a row with a share above 60%. The average price reduction across new home sales in January ticked up to 6%, from 5% in December, and 40% of builders reported cutting prices, unchanged from last month. 

Recent Census data indicate that new-home sales prices averaged $392,300 in October 2025, down 8.0% year-over-year. While new-home sales that month spiked 18.7% versus 12 months earlier, prices softened considerably as builders resorted to price reductions, incentives, and mortgage buydowns. 

This strategy, which became a tactical necessity to sell an unusually high level of started and completed inventory, has eroded homebuilder profit margins. The following are examples of year-over-year declines in gross profit margin, pulled from public builders’ latest earnings reports.

• Lennar: 17.0%, down from 22.1%.
• Smith Douglas Homes: 21.0%, down from 26.5%.
• Pulte: 26.2%, down from 28.8%.
• D.R. Horton: 21.66%, down from 23.6%. 
• KB Home: 17.0%, down from 20.9%.

Geographically, builder confidence remains highest in the Northeast (45) and the Midwest (43), and lowest in the South (35) and the West (35). The lower confidence in the South and West correlates with an oversupply of new homes in those regions, which has put downward pressure on prices. The largest metro areas to experience the largest declines in home prices last year were all in the south, led by Austin, Tampa, Miami, Orlando, and Dallas.

In a statement, NAHB Chairman Buddy Hughes said the luxury housing market is doing well, but the entry-level and first-time homebuyer segments are struggling. 

“Buyers are concerned about high home prices and mortgage rates, with downpayments particularly challenging given elevated price to income ratios,” he said. 

“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,” NAHB Chief Economist Robert Dietz added. 

However, there’s a silver lining. The average 30-year mortgage rate is now 6.04% as of January 14, the lowest point recorded since October 2024. Still, economic uncertainty and shaky consumer confidence continue to dampen the outlook for the housing market.