Builder sentiment runs soft as affordability strain subdues orders

“While builder sentiment edged higher in August, builders continue to contend with high construction costs and broader economic uncertainty,” NAHB Chairman Bill Owens said in a statement. “Rising gas and diesel prices are pushing up material costs, and spec home building remains weak as many prospective buyers stay on the sidelines. However, the Midwest remains a bright spot for the home building industry, with new home sales up in that region more than 2% so far in 2026.”

The latest HMI survey found that current sales conditions rose two points to 39 in August, while the components tracking sales expectations over the next six months and prospective buyer traffic held steady at 43 and 23, respectively. For reference, any HMI number below 50 means that more homebuilder survey respondents have a negative outlook that those with a positive one.

Looking at the three-month moving averages for regional HMI scores, the Northeast slipped one point to 44, the Midwest was unchanged at 45, the South declined two points to 31 and the West held at 27.

“Our latest builder survey continues to show signs of weakness in the home building market,” said NAHB Chief Economist Robert Dietz. “August marked the 16th straight month that at least 30% of builders reported cutting prices to support demand, as well as the 16th consecutive month with the HMI below 40. Custom home builders continue to report stronger market conditions than spec builders, reflecting better conditions at the higher end of the market. Smaller, less dense markets are also outperforming larger metropolitan areas, and smaller builders report relatively stronger conditions than larger builders.”

Incentives remain elevated

According to NAHB, 35% of builders cut prices in August, down from 37% in July and unchanged from June. The average price reduction was 6% in August, the same as the previous month, and the share of builders using sales incentives was 63% in August, unchanged from July.

The problem of elevated incentives is particularly acute among entry-level and affordable-price-tier buyers, who are most sensitive to mortgage rate volatility and affordability pressures. Builders that focus predominantly on affordable price points often must choose between maintaining volume by “buying” sales through incentives or pulling back to protect margins.

Smith Douglas Homes‘ strategy and performance illustrate this dilemma. The builder posted commendable year-over-year growth, with closings growing 25% and new home orders increasing 32%. However, to support this sales activity, the company had to employ generous incentives last quarter, resulting in gross profit margins falling 560 basis points to 17.6%. 

Many private builders struggle to match the incentives offered by public operators such as Smith Douglas Homes. One of them is Betenbough Homes, which builds in the West Texas submarkets of Lubbock, Amarillo, Midland and Odessa. The company, an entry-level builder, offers affordably priced homes, starting below $200,000, a rarity in today’s housing market. 

These buyers, however, are quite strained, particularly as mortgage rates have moved higher. 

“Our buyer is very payment-sensitive, so even relatively small movements in mortgage rates can have an outsized effect,” Kalee Rich, Betenbough Homes Director of Sales & Marketing, told HousingWire TBD. 

“The underlying desire to own a home hasn’t disappeared,” Rich added. These buyers, though, need the right incentives and discounts to make the monthly payment work. “They are incredibly sensitive not only to the price of the home, but to what that price translates to in a monthly payment.”

Parts of the spring and summer have fallen short of traditional selling-season expectations for Betenbough Homes. However, not all of Betenbough’s operating submarkets perform equally. 

Not all markets are created equal

“Lubbock is probably where we feel the most pressure today. There is a significant amount of new-home inventory in the market, and builders are competing aggressively for a buyer who has become much more price- and payment-conscious. In that environment, I do think there are pockets where the number of available homes has gotten ahead of current demand at historical pricing,” she said. 

But rather than describing West Texas as broadly oversupplied, Rich emphasized the nuance and diversity of its individual markets. Cities in the Permian Basin, like Midland and Odessa, have a very different supply-demand balance. 

“We’re seeing a very different picture in parts of the Permian Basin. We have pent-up demand there and customers on waiting lists who are ready to build. In those markets, we aren’t trying to work through a large supply of completed available homes. We actually don’t have any available homes. We are building what our customers choose as quickly as our capacity allows,” Rich explained. 

Competition from public builders is a competitive constraint impacting private builders in West Texas. In the St. Louis market, where McBride Homes operates, the opposite is true. 

“We don’t have nationals,” McBride Homes CEO and President Jake Eilermann said in an interview. “We have big regionals, and they’re obviously doing some [incentivizing] as well. But we’re not really in that incentivizing game.”

McBride Homes primarily targets the entry-level segment, but also has some higher-end products as well. According to Eilermann, the buyers that McBride Homes targets haven’t been substantially impacted by higher mortgage rates. 

“If somebody wants to buy a new home, I think they’ve swallowed the sixes as just the new norm, in our market at least,” Eilermann said.

Sales for McBride Homes so far in 2026 have been quite steady, and have roughly matched what the builder experienced in 2019. Part of this is because certain Midwestern markets like St. Louis never experienced the post-COVID building boom that many cities in the Sun Belt had. 

“I think St. Louis is relatively balanced, to be honest,” Eilermann said. “I think we’re really right back on track to where we were pre-COVID market, honestly, of just steady growth by all the builders. I mean, everybody seems to be doing okay. So I think it’s overall still just strong and steady.”

Standing out from the crowd

Florida is often seen as a more challenging market, with select cities suffering from an excess supply of new homes and ongoing affordability constraints. However, some builders in the Sunshine State have weathered the storm by offering a differentiated product. 

One of them is Minto Communities USA, which builds throughout Florida and coastal South Carolina, has found success in the state even as many other builders are forced to pull back. 

Most of the builder’s homes are priced in the $ 300,000s to $1 million range, and demand varies by buyer segment, according to Minto Communities USA President Bill Bullock. The builder is seeing strong demand for affordable products among traditional buyers, while the more affordable active-adult homes are moving a bit slower. The 55+ buyer segment, Bullock said, tends to favor Minto Communities’ more premium-priced products. 

Overall, sales started the year strongly, with February marking the company’s best month in more than a year, before demand weakened when mortgage rates rose following the Iran conflict. More recently, sales have rebounded, with low cancellation rates and some of its best sales weeks of the year taking place over the summer. Its three active communities are selling roughly 30+ homes per month each, or approximately 350–400 homes annually.

Minto differentiates itself by self-developing and building large-scale, lifestyle-focused master-planned communities with attractive amenities and thousands of lots. The company controls the full value chain from land acquisition, land development and homebuilding, which helps it avoid the price competition facing smaller, commoditized subdivisions. This strategy, Bullock said, helps set Minto Communities apart from the competition. 

“If you’re in smaller commoditized communities of 200 to 300 homes a year, you’re not really differentiating yourself from the competition, and there are some struggles out there,” Bullock said. “We’re not experiencing that because in large master plan communities, people will pay for lifestyle, and we’re selling a home a day in every one of our communities.” 

Building communities with several thousand lots or more allows Minto Communities to deliver top-tier amenities that aren’t possible in a standard subdivision. Communities in Florida that don’t have these lifestyle-driven features are often struggling right now. 

“If you’re not, then I believe you’re a commodity, and it’s tough out there. You’re discounting, and you’re chasing the bottom,” Bullock said. 

GL Homes, a South Florida builder that targets active adult and amenity-driven master planned communities, has a similar strategy. The builder appeals to lifestyle-driven buyers through its large master-planned communities, such as the massive 4,000-acre Riverland community in Port St. Lucie, located north of Palm Beach. 

While many builders in Florida struggle or pull back on new construction and sales, GL Homes President Misha Ezratti said that the company had its strongest June on record this year. 

“Our traditional selling season is actually the winter, from January to April,” Ezratti said, when referring to the 55+ buyer segment. “But what we saw this year, which was amazing, was that the spring went well into the summer and was extremely robust across all categories throughout the company.”

Contrary to the “overbuilt Florida” narrative, Ezratti doesn’t see demand exceeding supply, at least among lifestyle-driven and 55+ communities. The key is having the right formula of a top-tier location and attractive amenities at the right price point. 

For example, a new GL Homes 55+ community in Naples, FL, often thought of as one of the toughest submarkets in the nation, continues to perform, as there are few other new projects coming online with the same amenities and “A” location. 

“It’s not… a low price market by any means, but there’s really not a lot of competition in Naples. There are only a few pieces of land left in the great locations,” Ezratti said. “That, combined with our lifestyle… has really motivated buyers to come in.” 

Will BTR bounce back?

Since the passage of the 21st Century ROAD to Housing Act, investors and build-to-rent (BTR) developers say that capital has begun to flow back into new BTR projects after several months of legislative uncertainty. 

However, John Isakson, CEO of ARK Homes for Rent, said in an interview that capital is coming back gradually. 

“I do think capital is going to come back, but I do think it’s going to be slow to come back,” Isakson said. “We have seen more sellers and more deals since the bill passed, but not dramatically more.” 

Isakson believes it could take several months for capital to fully return to the BTR sector, with the National Multifamily Housing Council’s annual meeting in January potentially serving as a major milestone for renewed capital activity. 

Overall, Isakson has observed that, at least in the Sun Belt markets where ARK Homes for Rent operates, new construction has slowed dramatically as the region works through excess new supply. Isakson views the BTR recovery in the Southeast as highly local, with markets like Atlanta and Charlotte likely recovering the fastest, while heavily hit Florida markets such as Panama City and Fort Myers remain the most challenged. 

“The oversupply has lingered longer than people expected for two reasons. Number one, the market’s been slower than people expected, so lease-ups have not gone as well. Number two, deliveries have been delayed… these units that we expected six to nine months ago are really just hitting the market now,” Isakson said. 

However, Isakson views the long-term demand for BTR as strong, and pushed back on the idea that rental demand will collapse if homeownership becomes more affordable. 

“Will demand go down if interest rates get cut in half? Sure. But is demand going to go away? Is it going to go down in a big drop? Absolutely not,” Isakson said.