Home sellers should expect reality check on pricing, industry economist says

The homebuilding industry faced a reckoning in 2025 — a year that began with strong optimism but ended with a sharp reset in expectations.

Now, Robert Dietz, chief economist for the National Association of Home Builders, warns that 2026 could bring a similar reality check for existing-home sellers.

“We think a lot of those existing homeowners, when they put their homes in the market, they're going to have to do the price discovery the builders have engaged in in 2023, 2024 and 2025,” Dietz said in an interview with Homes.com. “What they will find is that in many markets, the price that they maybe assume to sell for their home will not, and they will likely have to discount it just somewhat.”

Dietz speaks from some experience. The trade group had approached 2025 with “bullish expectations,” he said, due to expectations that mortgage rates would move lower and regulatory relief was coming to make building faster and easier. However, the year simply did not deliver, according to Dietz, who estimated that single-family housing starts would be about 7% less than in 2024.

It was a year when major public homebuilders posted year-over-year declines in revenue and drops in sale prices, all resulting from a decrease in the number of homebuyers purchasing newly built homes. Companies such as top national builders PulteGroup, D.R. Horton and Lennar have leaned on offering more incentives to lure cost-burdened buyers.

Builders are scaling back construction to protect profits, yet the NAHB estimates the United States still needs over 1 million additional housing units to meet demand — even as new-home inventory climbs to its highest level since 2009.

The solution, Dietz said, will come from changing policies to make building easier and faster, along with an increase in skilled labor, available lots, material supplies and lending.

"It took the housing sector a decade to get into this situation; it will likely take a decade to get out," he said.

Still, the trade group remains positive, projecting a 1% increase in homebuilding for 2026. It expects home sales to rise as prices moderate and incomes grow — particularly in the existing-home market.

“We expect most markets in the country to post price declines [for existing homes] in 2026, and that's part of the recalibration of housing affordability conditions,” said Dietz. “It's going to require some price softening along with income growth.”

Dietz pointed to the price-to-income ratio, a measure between home prices and household income that highlights the discrepancies between housing costs and what people can afford. According to an analysis of last year’s data, Harvard University’s Joint Center for Housing Studies put the price-to-income ratio at 5:1, meaning the median single-family home price is five times higher than the median household income. Historically, a 3:1 ratio is deemed balanced.

The price gap between newly built homes and existing homes, based on U.S. Census Bureau data, narrowed in 2024 to $14,600.

From 2020 to 2024, data from NAHB shows existing home prices increased by over 37%, spurred by the post-pandemic real estate buying frenzy. The year-over-year wage growth for private employees is just 3.9%, according to the Economic Policy Institute.

Some major markets see that normalization of run-up prices happening now: Jacksonville, Florida, posted a 4.3% year-over-year price decline in October, according to Homes.com housing market data, with other metropolitan areas such as Houston, Texas; San Diego, California; Portland, Oregon; Denver, Colorado; and Atlanta, Georgia, posting median home price drops.

Median price declines in some metropolitan areas align with rising home inventory, which is up 22% year-over-year, according to September Homes.com data. That's not an entirely positive thing for homebuilders that benefit from a lack of existing homes on the market. But increased supply could help even out prices, analysts have said.

“The big challenge for homebuyers is not going to be interest rates. It’s down payment requirements,” said Dietz. “We will need to see an improvement in liquid savings for some of those homebuyers to come off the sidelines.”

A November NAHB survey found that 65% of homebuilders offered some kind of sales incentive to help buyers afford a new home, ranging from lower mortgage rates and discounts to free upgrades. Another 41% cut prices.

Dietz anticipated those incentives to taper off this year. Instead, they surged to a record high as economic and political uncertainty weighed on buyers already grappling with strained budgets.

Public builders reported incentives ranging from 8% to 14% of the base price of a home, offering buyers a favorable deal.

“That kind of sales incentive is likely to stick around, albeit at a reduced frequency in 2026,” he said.

Builders have taken steps to adapt to the current market demands. Most notably, the share of townhouse construction has increased to 18% of total starts currently, up about 8% over 10 years. Dietz expects that share to rise to 25% within the next five to 10 years.

“In an environment where a lot of potential first-time homebuyers are frustrated by the inability to get into the marketplace, we can build more attainable product,” said Dietz. “That trend is going to continue because … [households] are willing to sacrifice on lot size to purchase a home. I’m particularly bullish on that.”

Zoning changes are often required to allow this high-density housing type in more municipalities, he said. However, some developers have found success in creative ways, Dietz pointed out, with some repurposing underused former shopping malls into residential villages with townhouses for sale.

Accepting a reduction in square footage to become a homeowner is a function of affordability that many builders have welcomed, with firms such as D.R. Horton reporting slight shrinkage of floor plan sizes over the past few years, in line with federal data.

Yet Dietz said that trend is about to reverse course.

“My expectation is new home size will continue to fall in 2026 just slightly and beginning to rise again in 2027 as we potentially see the fertility rate go up with some of these younger households having more children,” he said.