Builder Sentiment Ticks Up to 35, Longest Sub-40 Stretch Since 2012

The NAHB/Wells Fargo Housing Market Index rose one point to 35 in August, defying consensus forecasts for a decline to 33 and marking the 16th consecutive month below 40 — the longest stretch since 2012.

"While builder sentiment edged higher in August, builders continue to contend with high construction costs and broader economic uncertainty," said Bill Owens, chairman of the National Association of Home Builders. "Rising gas and diesel prices are pushing up material costs, and spec home building remains weak as many prospective buyers stay on the sidelines."

The current sales subindex climbed two points to 39, the highest since May, while future sales expectations held at 43 and prospective buyer traffic stayed at 23. The index has not breached the 50 level demarcating positive conditions in more than two years. Thirty-five percent of builders cut prices in August, down from 37 percent in July, with the average reduction at 6 percent. Nearly two-thirds of builders offered some form of sales incentive.

The residential real estate market remains in a deep rut. The contract rate on a 30-year fixed-rate mortgage, the most popular U.S. home loan, ticked lower in the week ended August 7 for the first time since mid-June, but at 6.77 percent it remains near the highest in more than a year. Gasoline prices, driven higher by disruptions to global energy markets from the Iran war, remain above $4 a gallon — about 30 percent higher than this time last year — while diesel fuel used to power construction vehicles averages $5.45 a gallon, nearly 50 percent above last August.

Regional Divergence Widens

The three-month moving averages reveal a widening gap across regions. The Midwest held steady at 45, the strongest reading nationally, with new home sales in that region up more than 2 percent so far in 2026. The Northeast slipped one point to 44, while the South fell two points to 31 and the West was unchanged at 27. Smaller, less dense markets are outperforming larger metropolitan areas, and smaller builders report relatively stronger conditions than larger ones, according to NAHB Chief Economist Robert Dietz.

"August marked the 16th straight month that at least 30 percent of builders reported cutting prices to support demand," Dietz said. "Custom home builders continue to report stronger market conditions than spec builders, reflecting better conditions at the higher end of the market."

The divergence between custom and spec builders points to a bifurcated market: wealthier buyers with cash or lower-rate financing continue to transact, while first-time and move-up buyers remain priced out. That dynamic helps explain why the current sales index improved while buyer traffic stayed flat — the buyers who are active are concentrated at the top of the market.

The persistence of sub-40 readings carries implications beyond the construction sector. Housing starts feed directly into GDP, and each month of depressed builder confidence reduces the pipeline of new supply in a market already constrained by limited inventory. With the Federal Reserve holding rates at elevated levels and the Iran conflict keeping energy costs high, the affordability squeeze shows no near-term relief.

The last time the HMI remained below 40 for 16 consecutive months was in 2012, when the housing market was emerging from the foreclosure crisis. That period eventually gave way to a sustained recovery as mortgage rates fell and employment strengthened. The current cycle differs: rates are near multi-year highs, construction costs are rising, and geopolitical uncertainty adds a layer builders have not faced in over a decade.

For homebuilders like D.R. Horton, Lennar, and PulteGroup, the extended weakness in sentiment points to continued pressure on margins and order volumes. The Midwest's relative strength offers a regional bright spot, but the national picture remains one of a market waiting for relief on rates — relief that appears unlikely before the Federal Reserve's next policy decision.

This article is for informational purposes only and does not constitute investment advice.