Builder confidence improved modestly in August as the National Association of Home Builders’ Housing Market Index rose one point to 35. The increase offered a limited bright spot, but sentiment remained well below the 50-point threshold separating predominantly positive conditions from negative ones. High construction costs, economic uncertainty and cautious buyers continue to weigh on the market.
Key takeaways
- The national HMI increased one point to 35 in August.
- Current sales conditions rose two points to 39.
- Expectations for future sales held at 43, while buyer traffic remained at 23.
- The index stayed below 40 for the 16th consecutive month.
- The Midwest was the strongest-performing region, despite flat sentiment.
Regional conditions remain uneven
Three-month regional averages showed mixed results. The Northeast index declined one point to 44, while the Midwest held at 45. The West remained unchanged at 27, the lowest regional reading, and the South fell two points to 31.
The Midwest continues to stand out as a relative bright spot. New-home sales in the region have increased by more than 2% so far in 2026, offering builders there a stronger backdrop than many other parts of the country.
Builders face persistent cost and demand challenges
Builders continue to contend with elevated construction expenses and broader economic uncertainty. Rising gasoline and diesel prices are adding pressure to material and transportation costs, making it more difficult to maintain margins and keep new homes competitively priced.
Demand also remains fragile. Speculative, or “spec,” home construction is weak as many potential buyers remain on the sidelines. August marked the 16th consecutive month in which at least 30% of builders reported cutting prices to stimulate demand, underscoring the strain across the sector.
Sales conditions improve, but buyer traffic is weak
The HMI’s current-sales component rose two points from July to 39, suggesting a modest improvement in builders’ assessment of present conditions. However, the other key measures were unchanged: expectations for sales over the next six months remained at 43, and the prospective-buyer traffic index stayed at 23.
The combination of steady expectations and weak traffic indicates that builders may see potential for improvement, but are still struggling to convert interest into transactions. Affordability concerns and uncertainty about the economy continue to limit purchasing activity.
Smaller and custom builders report stronger results
Market performance varies significantly by business model and location. Custom-home builders are reporting better conditions than spec builders, reflecting stronger demand at the higher end of the market. Smaller, less-dense markets are also outperforming major metropolitan areas.
Smaller builders likewise report comparatively stronger conditions than larger companies. Still, with the overall HMI below 40 for more than a year, the August increase points to stabilization rather than a broad recovery in residential construction.