Builder confidence slips again amid cost pressures 

High costs are continuing to depress builder optimism in 2026, according to the National Association of Home Builders (NAHB).

The organization's builder confidence index fell to 36 in February, down a point from January. This is the 10th straight month that builder confidence levels have remained under 40.

Regionally, the Northeast and the Midwest had the highest confidence scores at 43, followed by the South (35) and the West (33).

Why builder pessimism persists: Elevated land and construction costs, combined with the affordability challenges that are making it harder to sell homes, were cited as the key reasons for ongoing builder pessimism.

"While the majority of builders continue to deploy buyer incentives, including price cuts, many prospective buyers remain on the sidelines," NAHB Chairman Buddy Hughes said in a news release.

So what's the solution for the housing market? Robert Dietz, chief economist at the NAHB, said it'll be the "enactment of policies that will bend the construction cost curve and enable additional supply of attainable housing."

Meanwhile, remodeling has remained solid amid a lack of household mobility even as demand for new construction has weakened, the organization's report noted.

Fall slowdown a factor: Low builder confidence may also be related to the housing market's sluggish fall season. 

Residential construction data for November and December that was released Feb. 18 by the U.S. Census Bureau provided a mixed bag in terms of building permits and housing starts. The main takeaway: Overall activity picked up between November and December but was still down significantly compared to the end of 2024.

It was a slow year across the board for single-family home construction, according to an NAHB analysis. For the entire year of 2025, there were an estimated 943,000 single-family housing starts, down 6.9% from 2024. Single-family permits totaled 909,600 in 2025, down 7.4% compared to 2024.

Single-family homes under construction were meanwhile at 587,000 units in December, down 8.4% year-over-year.

"Taken together, these results point to a slightly disappointing 2025 for builders, and a cautious start to 2026," said Joel Berner, senior economist at Realtor.com. "Especially in the single family home segment, builders are wary of being left with inventory they can't sell as buyers face their own uncertainty and grapple with mortgage rates above 6%."

Supply-side challenges remain: It's also a signal that the construction industry is waiting for signs of improving demand, according to Lisa Sturtevant, chief economist at Bright MLS.

"Builders will continue to be cautious to start 2026, waiting for consumers to feel more confident. As buyers show signs of returning to the market, it is likely we will see new construction increase this spring," Sturtevant said.

"Even as demand improves, builders face challenges on the supply side," she added. "A lack of construction labor, elevated land costs and often wide-ranging local regulations will continue to make it challenging to build new housing, particularly housing at lower price points."

A silver lining? One bit of good news for builders is that the cost of credit declined in the fourth quarter of 2025 to its lowest level since 2022. Land acquisition rates dropped from 7.95% in the third quarter to 7.51% in the fourth quarter, while loan rates for speculative single-family construction fell from 7.89% to 7.47% over the same period.

Easing inflation should continue to lower interest rates for builder loans, according to Dietz.