Homebuilding business executives remain pessimistic about the market overall, as shrinking margins, increased incentives, high housing costs, and economic uncertainty outweigh the benefits of moderating mortgage rates.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI)’s builder confidence gauge remained relatively flat, rising one point to 38 in November.
A score of 38 reflects negative sentiment and a year-over-year decline from 46, both of which are a far cry from 2022’s peak reading of 83.
Many builders report steady interest and traffic in their communities, but buyers remain on the sidelines, hoping that mortgage rates will be lower in 2026.
Recent headlines highlighting an increase in layoffs add an extra layer of uncertainty. A Challenger, Gray & Christmas report found that 153,074 job cuts were announced in October, the highest fourth-quarter monthly total since 2008.
“While lower mortgage rates are a positive development for affordability conditions, many buyers remain hesitant because of the recent record-long government shutdown and concerns over job security and inflation,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, N.C.
The HMI survey found that 41% of builders reported cutting prices in November, a record high in the post-COVID era. The average price reduction was 6%, unchanged from November, and about two-thirds of builders reported using sales incentives.
The HMI index for current sales conditions rose by two points to 41, while the measure of expected sales dropped three points to 51, and the indicator tracking prospective buyer traffic inched up one point to 26.
“We continue to see demand-side weakness as a softening labor market and stretched consumer finances are contributing to a difficult sales environment,” said NAHB Chief Economist Robert Dietz.
A deeper dive into builder confidence
A sharp decline in margins over the last year helps explain the current slump in homebuilder confidence. Here are some examples of year-over-year gross profit margin declines, pulled from public builders’ latest earnings reports.
- D.R. Horton: 20%, down from 23.6%.
- Lennar: 17.5%, down from 22.5%.
- Tri Pointe Homes: 20.6%, down from 23.3%.
- PulteGroup: 26.2%, down from 28.8%.
- Smith Douglas Homes: 21%, down from 26.5%
These declining margins reflect a harsh reality. Buyers, especially among the cash-strapped entry-level segment, can’t afford homes at current prices. As a result, builders must employ more generous incentives or reduce prices to push inventory. At the same time, construction and land costs remain elevated.
Looking ahead
Many homebuilding executives agree that any meaningful increase in homebuyer demand in 2026 is tied to stronger consumer confidence and more economic certainty.
A Private Homebuilder Survey from Wolfe Research found that October orders increased 0.6% monthly, but incentives increased 30 basis points. However, Wolfe Research analyst Trevor Allinson forecasts that builders will begin opening new communities at market-clearing prices and will eventually rely less on incentives.
“Longer-term, we believe this ‘market price’ reset is healthy for consumer confidence, reducing buyer fear that they are purchasing a home with declining value,” he wrote.
