Sentiment among U.S. single-family home builders retreated in January, relinquishing slight optimism recorded last month as the new-home market continues to struggle.
The National Association of Home Builders (NAHB) released an update to its NAHB/Wells Fargo Housing Market Index (HMI) on Friday that showed a reading of 37, marking a two-point decline from December to January.
The HMI reflects a monthly survey of single-family builders who are asked to assess three aspects of the housing market: present sales of single-family homes, expectations for sales of single-family homes over the next six months, and traffic of prospective buyers.
On a scale of 0 to 100, the overall index has not crossed above 50, which separates majority-positive and majority-negative market sentiments, since April 2024. The reading of 37 in January is slightly above 2025 lows of 32 in June and August.
Among the component indexes, builder attitudes on current sales conditions fell one point to 41. Six-month sales outlooks slipped back under the surface of the 50-point threshold it crossed last month, shedding three points to land at 49.
Remodeling demand resilient
A separate builder index has proven much more resilient in 2025, however. The NAHB/Westlake Royal Remodeling Market Index (RMI), updated quarterly as opposed to the monthly HMI, has only declined from 83 in the fourth quarter of 2020 to 64 in the fourth quarter of 2025.
In fact, the remodeling index has risen consistently through the second, third and fourth quarters of 2025, from 59 to 61 to 64, respectively. Remodeling and renovation play a crucial role in expanding housing inventory by returning outdated or damaged housing stock to the market.
Robert Dietz, chief economist at NAHB, told Scotsman Guide in September that remodeling makes up about 40% of residential construction, a market share he expects will expand in the long run over site-built construction.
“Household formations are going to fall off, there’s going to be more tear-down construction, there’s going to be more rehab of existing stock,” he said. “That’s where the long-run growth potential of the industry is.”
Amid declining sentiment in the new-home market, Dietz repeated that optimism on Thursday in a press release announcing the quarterly update to the RMI.
“Demand for remodeling is being supported by an aging housing stock, strong homeowner equity and increasing need for aging-in-place improvements,” said Dietz. That demand has been supported by “fix-and-flip” real estate investors who purchase, renovate and resell properties to traditional residential buyers.
While turning a profit on these investments has been challenging in the post-pandemic era due to high acquisition and financing costs, the latest update to the RMI suggests broader renovation outlooks remain strong.
Plus, liquidity in the lending ecosystem supporting these ventures has matured over the past decade and even more so since the pandemic, leading experts in the space and Dietz to remain bullish on the long-term prospects.
New-home market stalling
The U.S. housing market and stakeholders across it have suffered from a protracted home building drought that has structurally worsened a longstanding housing affordability crisis.
But as industry leaders and policymakers call for more housing supply, new-home construction largely stalled out in 2025.
The five-year plunge in index highs near 90 at the end of 2025 to the mid-30s at the end of the year is reminiscent of the decline from peak home building sentiment pre-2008 financial crisis. During that period, the index dropped from around 70 in the summer of 2005 to lows under 20 in the summer of 2010.
The Mortgage Bankers Association reported this week that mortgage applications for newly built homes rose 2.5% over the month in December, though the association’s initial estimates show new-home sales plummeted 15% from November to land about 7% higher than a year ago.
Builders have slowed their pace of starts in 2025 as they confronted weak demand from buyers for completed inventory. Meanwhile, legislation designed to slash regulatory costs, incentivize zoning reforms and speed up permitting remains held up in Congress.
As labor market anxieties, inflation and political upheaval soured consumer attitudes toward the economy and homebuying following President Donald Trump’s “Liberation Day” tariff announcement last April, builders have turned to aggressive sales incentives.
That trend has continued into the first month of January, with 40% of respondents to the NAHB survey reporting price cuts, the same level as December but “the third consecutive month the share has been at 40% or higher since May 2020.”
The average size of price cuts rose over the month, however, to 6% of list price from 5% in December. Two-thirds of builders reported the use of sales incentives overall, which the country’s largest publicly traded home builders forecasted would continue in 2026.
