New-Home Price Cuts Rise as Homebuilder Confidence Drops for a Second Straight Month

Homebuilders are trying to lure homebuyers with incentives, despite builders facing higher costs to build a new home.

Builder confidence in the market for newly built, single-family homes fell one point to 36 in February, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index released Tuesday.

"While the majority of builders continue to deploy buyer incentives, including price cuts, many prospective buyers remain on the sidelines," NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, NC, said. "Although demand for new construction has weakened, remodeling demand has remained solid given a lack of household mobility."

February's HMI survey shows that 36% of builders cut prices in this month—down from 40% in January. This marks the lowest level of price-cutting since May 2025, when it was 34%. The average price reduction remains at 6%.

"Builders reduced their expectations for future sales as buyers report affordability challenges, which is contributing to declining consumer confidence for the overall economy," said Hughes.

Meanwhile, the use of sales incentives by homebuilders was 65% in February, unchanged from January. It marks the 11th consecutive month this share has exceeded 60%.

The HMI index gauging current sales conditions held steady at 41 from January to February, but the index measuring future sales fell three points to 46, and the gauge charting traffic of prospective buyers fell two points to 22.

"Housing affordability remains an ongoing challenge at the start of 2026,” said NAHB Chief Economist Robert Dietz.

The overall three-month moving averages for regional HMI scores: The Northeast fell one point to 43; the Midwest held steady at 43; the South dropped one point to 35; and the West fell two points to 33.

“The solution for the housing market is the enactment of policies that will bend the construction cost curve and enable additional supply of attainable housing. On the positive side, easing inflation should continue to allow lower interest rates for mortgages and builder loans," said Dietz.

Affordability concerns

Inflation fell to its lowest level since early 2021. Overall prices came in at 2.4% in the 12 months through January 2026—that's down from 2.7% in December, according to the U.S. Department of Labor's Consumer Price Index (CPI), but it comes in below the majority of economists' expectations.

Mortgage interest rates dropped slightly to 6.09% for the week ending Feb. 12—that's down from 6.11% the week prior, according to Freddie Mac.

The median list price for a newly built home in Q4 2025 was $451,128—that's up 0.3% year over year. While the price per square foot for new builds has returned to a level higher than for existing homes after about two years of inversion.

"Builders are facing down highly compressed margins. On one side they're subject to rising costs of land, labor, and materials; and on the other, they're being forced to cut prices and offer incentives to attract affordability-conscious buyers," explains Joel Berner, senior economist at Realtor.com®.

"This makes building homes especially difficult to do at a profit, and as a result, many builders are feeling the pinch and pulling back on new construction projects. The U.S. still faces a housing shortage of millions of homes, and the only long term solution is to build those homes, so it's discouraging to see builders feeling discouraged."

There is now a higher rate of price reductions among new-construction listings (19.3%) than resale listings (18%) nationwide. Price reductions are generally concentrated in the South and West, but Indiana, Minnesota, and New Jersey also have more price reductions on newly built homes than the national level, according to the Realtor.com New Construction Insights report.

The question remains, will builder incentives be enough to get potential buyers off the sidelines, and are existing-home sellers able to compete with builder discounts? So far, it's not evident, considering sales of previously owned homes in the U.S. dropped 8.4% in January, according to the National Association of Realtors.

"Sellers of existing homes are facing a lot of competition from the new-home space, especially in markets like Austin, with high levels of new construction at affordable price points," Berner says. "Location is always key, so sellers should highlight the local amenities of their neighborhoods in contrast to the more suburban or exurban communities where many new homes are built."