Home Builder Confidence Withers in January

Home builder pessimism grows

The lack of starter-level housing for sale is perhaps the biggest detriment to home buyers today.

That scarcity’s cascading effect first drives up competition and then, prices. But could help be on the way?

A leading indicator of housing inventory fell to start 2026 after improving for the last three months of 2025.

Home builder confidence up but remains low

Home builder sentiment ebbs and flows based on consumer demand, market conditions, shifting costs, and supply chain status.

Every month, the National Association of Home Builders (NAHB) and Wells Fargo survey NAHB members to measure this sentiment on a 0-100 scale in their Housing Market Index (HMI) report. The survey comprises three components for single-family housing: current home sales, home sales over the next six months, and traffic of prospective buyers.

In January, builder confidence decreased to a score of 37 from 39 in December and trails the year-ago mark of 47.

“While the upper end of the housing market is holding steady, affordability conditions are taking a toll on the lower and mid-range sectors. Buyers are concerned about high home prices and mortgage rates, with down payments particularly challenging given elevated price to income ratios,” said Buddy Hughes, chairman at NAHB.

The table below shows the HMI scores from the last 12 months:

The three index components experienced mild growth month-over-month. Current sales declined to 41 from 42, sales in the next six months dropped to 49 from 52, and prospective home buyer traffic fell to 23 from 26.

“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,” said Robert Dietz, chief economist at NAHB. “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.”

Broken down regionally, home builders in the Northeast had the most optimism with a three-month moving average score of 45 (down from 47 in December). Next came HMIs of 43 in the Midwest (flat), and 35 in the South (down from 36) and West (up from 34).

What other indicators of housing inventory say

Realtor.com’s monthly housing market report showed active home listings increased 12.1% annually to a total of 976,833 in December.

Among the 50 largest cities in the U.S., Washington, D.C., saw a 32.8% yearly jump in active listing count, trailed by 30.8% in Charlotte, N.C., and 29.2% in Las Vegas. On the flip side of the coin, Jacksonville, Fla., and Chicago experienced annual declines of 3.7% and 1.1%, and San Francisco had the third lowest annual growth at 1.4%

For a look ahead, the Census Bureau and Department of Housing and Urban Development put out a joint Monthly New Residential Construction Report. It breaks down three leading indicators of housing inventory.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.412 million in October. That figure decreased 0.2% month-over-month and 1.1% year-over-year.

Next, housing starts reached a SAAR of 1.246 million, down 4.6% monthly and 7.8% annually. Lastly, a SAAR 1.386 million houses were completed in October, 1.1% higher than September but 15.3% below October 2024.

The bottom line for home buyers

Between low affordability and not enough listings, home buying has been a challenging venture for prospective borrowers.

If you’re a house hunter, it’ll be helpful to grab every advantage you can. Always be prepared so you can move fast, negotiate your mortgage rate to lower your payments, and see if you qualify for down payment and/or closing cost assistance.

If you’re ready to take the next step to homeownership, reach out to a local mortgage professional.