In the August issue of Builder and Developer, Hepp breaks down the new realities of homebuilding

Builder and Developer: How have you seen builder sentiment and buyer behavior evolve so far this year?

Selma Hepp: Builder sentiment remains cautious, but buyer behavior has been more resilient than headline confidence measures suggest. The NAHB/Wells Fargo HMI fell to 34 in July and has remained below 40 for 15 consecutive months, reflecting the continued pressure from elevated mortgage rates, land costs, material prices and labor shortages. At the same time, others have reported that net new orders were up 16% year over year as of May, marking the fifth consecutive increase, which suggests demand is still present when builders can solve for affordability.

The biggest change is that buyers are more payment-sensitive and less willing to stretch.

Builders have responded with rate buydowns, closing-cost assistance, smaller floor plans and spec inventory. Spec homes now account for an all-time high share of new-home sales and that most (close to 90%) new-home mortgages include rate buydowns.

B&D: What implications will this have heading into the rest of 2026?

SH: The rest of the year is likely to remain a volume-management environment, suggested by the recent slowdown in new-home sales and permits at the lowest level since August 2025, underscoring builders’ caution around future production. Most of the forecast for sales suggests a slow-growth outlook: new-home sales are expected to increase only about 1% in 2026 and 4% in 2027, while new-home prices are expected to remain under pressure in 2026 before improving modestly in 2027. 

The implication is that builders will continue to prioritize absorption over pricing power, especially where inventories are elevated or where affordability is most stretched.

 B&D: You recently described the 21st Century ROAD to Housing Bill as the “most significant housing bill in decades.” Which specific provision do you think will make the biggest difference for builders in the near future?

SH:  For builders, the most important near-term provisions are the ones that reduce time, uncertainty and carrying costs in the development process. The final ROAD Act includes provisions related to pre-approved home designs, streamlining federal and local housing processes, exempting certain small-scale housing developments from federal environmental reviews and giving jurisdictions more flexibility with housing funds. In addition. expediting local permits, reducing environmental regulation, minimizing impact fees and HUD-code reform for manufactured homes are also key initiatives for housing production.

If I had to choose one provision with the biggest builder impact, it would be permitting and regulatory streamlining.

Time is a major cost in development. Every additional month in entitlement, environmental review, or permitting adds financing expense and increases the risk that market conditions change before a project delivers. Nevertheless, while the ROAD Act is a positive step, implementation will take time and more policy change is still needed at the state and local level. Also, for legislation success, there is an enormous need for administrative capacity at exactly the moment when at agencies, such as HUD, staffing resources have been reduced, which raises the risk that the housing benefits arrive more slowly than advocates expect.

B&D: How would you assess the current performance in regional markets in terms of homebuilding activity and what key factors are driving their strength?

SH: The regional story is highly bifurcated. The South continues to account for the largest share of homebuilding activity, supported by years of population growth, business migration and relatively abundant developable land. However, it is also the region where builders are managing higher inventory levels and relying more heavily on incentives.

The Midwest and parts of the Northeast appear more stable, as affordability remains stronger and supply growth has been more limited. By contrast, the West remains the most constrained and expensive region, with land, regulatory, insurance and labor costs continuing to restrict the delivery of attainable housing.

The strongest markets generally share a combination of employment growth, population inflows, relative affordability and manageable inventory levels.

Zelman’s analysis shows a clear relationship between resale inventory and home-price appreciation, with markets experiencing larger inventory increases facing greater pricing pressure. This helps explain why some Midwest and Northeast markets have performed better: they typically have less new supply, tighter resale inventory and better affordability than high-cost Western markets or overbuilt areas of the Sun Belt.

 B&D: While the hyper-inflation of building materials has cooled down compared to recent years, structural costs remain high. Where do you see builders finding relief and success over the next 12 to 18 months?

SH:  Builders are seeing some relief on the input side, but not enough to materially reset affordability. Overall labor and material cost pressure has moderated from pandemic highs and finished-lot inflation is roughly flat year over year. At the same time, elevated material prices, high land costs and skilled labor shortages continue to serve as major constraints, building material prices continue to be impacted by ongoing volatility from trade policy, softwood lumber, steel, aluminum and imported equipment.

The real opportunity over the next 12 to 18 months is likely to come from execution, not a dramatic decline in material costs.

Builders will find relief through cycle-time reductions, standardized plans, value engineering, better land discipline, supplier partnerships, factory-built components where feasible and smaller or denser product types.

 B&D: In Cotality’s report, trust in AI tools to help find a home dropped nearly in half, from 30% in 2025 to 16% today. What does this signal to the industry about the role this technology plays in decision-making?

SH:

The drop in AI trust tells the industry that speed alone is not enough.

Buyers may expect AI to be part of the process, but they want to understand how it is being used and who is accountable for the outcome. For builders, AI can be a powerful tool for matching buyers with homes and simplifying the journey, but it has to operate with transparency and a human in the loop. In a transaction this large, certainty matters as much as efficiency.

This is the full interview,  read the print version here.