American home builders are feeling more negative about the housing market than they have in a long time, but there’s a glimmer of hope in the luxury segment.
The National Association of Home Builders and Wells Fargo reported that their builder confidence index for newly constructed single-family homes plummeted to its lowest point in 14 years, dropping three points to 29 last month. That’s the lowest it’s been since June 2012.
Experts attribute this gloomy outlook to several factors, including high mortgage rates, inflation, and a tough job market, which have all impacted builders significantly. “The housing market is being squeezed by higher mortgage rates and an overall higher cost of living for prospective buyers, just as we enter the seasonally slower time of year for home sales,” noted Ali Wolf, the chief economist at Zonda.
Interestingly, home sale prices have actually been climbing. According to the Federal Housing Financial Agency, prices rose by 2.1% from the second quarter of 2025 to the same period this year. But with mortgage rates exceeding 7% lately, the traffic of potential buyers has hit a 14-year low, despite the evident demand for housing.
Robert Dietz, chief economist of the National Association of Home Builders, remarked that “higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines.” This decline in buyer activity has resulted in the lowest traffic numbers since April 2012, not counting the onset of the pandemic in 2020.
To combat this slowdown, home builders are reducing their prices—over 40% of builders reported price cuts last month, as indicated by the National Association of Home Builders, which represents around 80% of new construction in the U.S.
“Builders have to find ways to keep homes selling. That typically comes in the form of price cuts and/or incentives,” Wolf explained.
Things are a bit more favorable in the Midwest, where single-family building permits have increased by 2.9% this year, as per the housing market index. “When we look at housing demand across the country, the Midwest has been the strongest region in an otherwise slow market,” Wolf remarked, highlighting its relative affordability, consistent job growth, and accessible land for development.
Luxury housing, meanwhile, continues to attract affluent buyers—reflecting what some economists describe as a “K-shaped” economy. More builders are pivoting towards the luxury market, where many buyers are paying in cash. According to the Wall Street Journal, one out of four clients of luxury developer Toll Brothers is making all-cash purchases.
Douglas Yearly, the company’s chairman, commented, “Demand from luxury buyers remained relatively resilient.” Interestingly, luxury home prices are rising at a pace that outstrips that of starter homes in 33 of the 50 largest U.S. cities, as noted by the Journal.
In fact, Dietz pointed out that luxury housing is “outperforming the rest of the building sector.”
Overall, experts predict it will take about five years for housing costs to stabilize to what might be considered a “normal” level—defined by the ratio of mortgage payments to income, according to a recent analysis from Redfin.
