U.S. homebuilder sentiment fell in January as affordability concerns, rising material costs, and labor shortages weighed on the housing market, according to a survey released Friday by the National Association of Home Builders (NAHB) and Wells Fargo.

The NAHB/Wells Fargo Housing Market Index (HMI) dropped two points to 37, remaining below the 50-point breakeven level for the 21st consecutive month, signaling ongoing pessimism among homebuilders. Economists surveyed by Reuters had forecast a modest rise to 40.

Affordability Challenges Impact Lower and Mid-Range Housing

NAHB Chairman Buddy Hughes highlighted that while the upper-end housing market remains stable, affordability issues are taking a toll on 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,” Hughes said.

Despite a slight decline in the 30-year fixed mortgage rate to 6.06%, affordability pressures persist, limiting demand among prospective homebuyers.

Supply-Side Headwinds Continue

Builders continue to face significant supply constraints, including:

• Labor shortages exacerbated by immigration enforcement and workforce gaps
• Rising construction material costs, partly driven by tariffs
• Scarcity of buildable lots and increased regulatory burdens

The Associated Builders and Contractors estimated that the U.S. construction industry will need approximately 349,000 new workers in 2026 to meet ongoing demand. These challenges have contributed to a glut of unsold new homes, further constraining builder confidence.

Price Reductions and Incentives

The survey indicated that 40% of builders reported cutting prices in January, consistent with December’s reading, marking the third consecutive month above 40% since May 2020. The average price reduction rose to 6%, up from 5% in December.

Meanwhile, the share of builders offering incentives declined slightly to 65% from 67%, though it remained above 60% for the 10th straight month, reflecting ongoing efforts to stimulate buyer interest.

Sales Conditions and Prospective Buyer Traffic

The HMI survey’s key components showed continued softness:

• Current sales conditions: 41 (down one point)
• Future sales expectations: 23 (down three points)
• Prospective buyer traffic: 49 (down three points)

NAHB Chief Economist Robert Dietz commented:

“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.”

Policy Moves and Market Response

The survey results predated a recent presidential order directing the Federal Housing Finance Agency (FHFA) to purchase $200 billion in bonds issued by Freddie Mac and Fannie Mae, aimed at improving housing affordability. Analysts suggest that such measures, coupled with lower mortgage rates, could provide some relief to buyers and builders over the near term.

Outlook for the U.S. Housing Market

Despite challenges, analysts expect the upper-end housing market to remain relatively stable. However, ongoing affordability constraints, supply shortages, and rising costs are likely to continue limiting lower and mid-range home sales. Homebuilders will need to navigate these pressures carefully while balancing price reductions, incentives, and construction challenges to maintain market stability.