After dropping sharply in April, new-home sales sentiment brightened slightly in May, though U.S. home builders remain broadly pessimistic amid sector headwinds.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) — which tracks builders’ outlooks on current sales conditions, six-month sales expectations and levels of buyer traffic — rose three points to 37 this month.
That sets the index still one point lower than March, the first month following the start of the Iran war on Feb. 28. The HMI, which separates majority-positive and majority-negative market sentiment on a scale from 0 to 100, has not crossed above 50 since April 2024.
“Elevated long-term interest rates and rising gas prices are increasingly weighing on consumer sentiment,” said Robert Dietz, chief economist at NAHB, in market commentary published last week. “At the same time, markets continue to grapple with the headline risks of a prolonged Iran war, an upturn for inflation, and ongoing policy uncertainty.”
Despite new-home sales and single-family housing starts spiking in March, builder sentiment plunged in April as energy and trade shocks stemming from the ongoing Middle East conflict dragged into a second month, pushing the consumer price index to its highest level since 2023.
When it comes to homebuying demand, macroeconomic pressures including tariffs, trade wars and unmitigated policy uncertainty have created what Dietz described in April as a “multidimensional supply shock” that he observes “weakening the U.S. economy.”
Nevertheless, home builders reported broad index gains in their overall sentiment in May.
Among the HMI’s component indexes, outlooks on current sales conditions for newly constructed homes rose three points over the month to land at 40, while six-month sales expectations bumped up three points to 45. The index gauging traffic of prospective buyers rose three points to 25.
On a regional basis, improved sales sentiment was concentrated among builders operating in Northeast and Midwest markets, where the regional indexes showed monthly increases of five points to 44 and six points to 45, respectively. Regional HMI readings rose two points to 36 in the South and just one point to 27 in the West.
For the 14th consecutive month, more than 6 in 10 home builders reported using sales incentives to close deals, though just 32% of builders said they lowered prices in May, compared to 36% in April.
Fannie Mae’s Economic and Strategic Research Group reported last week that it expects single-family housing starts to decline by 2.4% in 2026 following a 6.9% decline in 2025.
