U.S. builder confidence continued to rise in December, reaching its highest level in eight months, but ended the year below the neutral level, according to a Dec. 15 report from the National Association of Home Builders (NAHB).
The NAHB/Wells Fargo housing market index (HMI) inched up by 1 point to 39 in December, the highest reading since April. However, sentiment remained below the break-even level of 50 in every month this year.
The lower scores are attributed to several factors, including escalating construction costs, tariffs and economic uncertainty, and the fact that many potential buyers are still on the fence because of worries about affordability.
“Market conditions remain challenging with two-thirds of builders reporting they are offering incentives to move buyers off the fence,” Buddy Hughes, NAHB chairman and a homebuilder in Lexington, North Carolina, said in the report.
“Meanwhile, builders are contending with rising material and labor prices, as tariffs are having serious repercussions on construction costs.”
However, NAHB chief economist Robert Dietz noted that the silver lining for 2026 is the fact that future sales expectations have been above the break-even level of 50 for the past three months. Still, he said, builders may continue to face challenges with continuing higher regulatory and materials costs into the early part of next year.
“Rising inventory also has increased competition for newly built homes,” Dietz said in the report.
“Homebuilders benefit especially from falling interest rates, as they reduce the cost of construction loans used to finance new projects, as well as potentially lower mortgage rates for their customers,” Realtor.com stated in the report.
According to the NAHB report, elevated interest rates typically affect the cost of borrowing for builders and can affect their ability to get construction loans.
The latest HMI survey also indicates that 40 percent of builders slashed prices in December, making it the second consecutive month in which the rate has been 40 percent or higher since May 2020.
Price reductions dropped by 1 percent from November, moving to 5 percent in December from 6 percent. However, sales incentive usage climbed to 67 percent in December, the highest level since the COVID-19 pandemic.
Other offers include $15,000 toward closing costs and interest rate buydown with no purchase deadline, a fixed rate of 4.99 percent, and a free finished basement.
NAHB has been conducting its builder sentiment survey for more than 40 years. The NAHB/Wells Fargo HMI is designed to analyze builder perceptions of current single-family home sales, as well as sales expectations for the next six months. Scores are used to calculate a seasonally adjusted index, in which any number higher than 50 indicates that conditions are good.
An analysis of three-month averages for regional HMI scores gives the Northeast the highest score at 47, followed by the Midwest at 43 and the South and West at the lowest score of 34.
