For builders, especially in the Sun Belt, the challenge starting in 2026 will be to operate at an entry-level surplus. As affordability pressures from higher mortgage rates and home prices weigh on first-time buyers, solving this supply imbalance will happen gradually.
The wait, however long, will be a test of patience and financial tolerance. Builders are clearly taking action. In Texas, a state with a lot more capital to build, one important step builders have taken is to slow down new construction, reducing both new permits and starts.
John Winniford, Texas-based President Early American Houseshe told Builder’s Day in the discussion that most of the country’s excess inventory is in the entry-level category.
First America, which builds entry-level homes in Houston and San Antonio, with expansion plans in Dallas and Austin, itself has cut back on new production for its core customer segment.
When asked if he believes the housing glut in Texas will correct itself over time, Winniford said he does, pointing to the decline in the foreclosure rate.
“It seems that, slowly, we are starting to see progress. But again, unless we see a big change in consumer behavior, it will continue to take time to work,” he explained.
New home construction slows as builders pull back
There is evidence that builders in Texas are more likely to pull back on new construction than builders in many other states, indicating a correction.
Homebuilders in the Dallas-Fort Worth metro area, for example, started 17.7% fewer homes year-over-year in the last quarter of 2025. Housing starts fell nationally by 7.8% year-over-year in October 2018. Census data also shows that single-family building permits issued statewide on October 5 and October 20 fell 7.8% year-over-year in October 2018. 2025, outpacing the statewide decline of 7.0%.
According to Winniford, entry-level foreclosures began to increase in Texas in 2022, when mortgage rates began to increase.
“Builders started to focus on building smaller homes or finding ways to reduce the overall cost of housing. So I think pricing was a big driver of pushing builders to build and add more offerings to that entry level or first-time buyer market,” he said. In addition, during those days of the first interest rate fluctuations, buyers were showing a preference for specific houses that were ready to move, so many home builders began to step up to meet the demand among these tough, rate-sensitive buyers.
Is demand improving?
Some community builders, including Houses in Beazer again The PulteGroupnoted at the end of January calls that demand and traffic have increased since mid-December, at least throughout the country. Winniford said he sees a similar trend in San Antonio and Houston, though it’s uncertain how long it will last.
“We’ve seen an increase in traffic over the last six weeks though, and that’s really good. The real question is, is it continuing? Are we getting just a little bump in consumer behavior because of the season, or is it a trend that could be sustained, that could lead, possibly, to a better spring sales season than we originally expected? I think it’s too early to say.
Winniford, like many other architects, notes consumer confidence as an important variable in the demand equation. An increase in consumer confidence can provide significant leverage to entry-level consumers, a segment that is most sensitive to affordability criteria.
What community builders say about Texas
Executives from several community builders recently called Texas one of the most challenging areas for housing in the nation in the short term, largely due to an oversupply of new homes.
This supply imbalance drove up prices in Texas’ four largest metro areas between November 2024 and November 2025, according to data from Zillow. These markets include Austin (-6.01%), Dallas (-3.86%), San Antonio (-2.65%) and Houston (-1.9%).
Jon Jaffee, former Co-CEO at Lennarcited “extra inventory” as the main reason prices fell in those markets during an earnings call last March.
“In general, homebuyers in Florida and Texas, our top two states, need more help than many other markets across the country. We needed more incentives in the Florida and Texas markets to help buyers achieve affordable mortgage payments,” he said.
Ryan Marshall, President and CEO of PulteGroup, said during the Q4 2025 earnings call in January that Texas is one of the most difficult markets for the company.
“We closed the year with our Texas and Western markets continuing to experience sluggish demand, although we may be seeing signs of a slowdown in Dallas and San Antonio,” he said.
In July, Marshall similarly pointed to Dallas and Austin as tough markets for Pulte.
Paul Romanowski, President and CEO at DR Hortonreferred to Texas as “choppy” and market-to-market during the October earnings call. Without specifying which areas were underperforming, he said that other major markets “still have a high level of innovation that we and the industry must work on in the coming months.”
M/I houses CFO Phill Creek said in January that Texas was mixed, and explained that Dallas and Houston did well, while Austin and San Antonio were weak. During Q4, M/I Homes posted $51 million in impairments, mostly in entry-level communities with an estimated sales price of less than $375,000. Most of those communities were in the San Antonio and Austin markets.
Is the post-bottom uptick in the Texas market working?
Despite tough market conditions last year, home prices in major Texas markets are expected to increase in 2026. These forecasts, combined with strong population growth and moderate new home starts, may indicate future stability and better days ahead for the Lone Star State housing market.
Home value forecast for 2026 from Realtor.com forecasts that home prices in Austin (+2.0%), DFW (+1.8%), Houston (+0.4%) and San Antonio (+0.2%) could all increase in 2026. Texas A&M University similarly predicted a 1.3 percent increase in the median home value in Texas this year.
Winniford hopes for continued economic growth and population growth. Texas added 391,243 people between July 2024 and July 2025, growing 1.2%, about 2.5 times faster than the national average. The only states with a higher growth percentage were South Carolina, Idaho and North Carolina.
Texas also remains more affordable than many other states in the country, which is another draw for people from abroad. First America Homes’ Lexington Heights community in Houston’s Willis neighborhood, for example, offers a 3-bed, 2.5-bath model starting at $309,839.
Prices have risen significantly since the pre-COVID era, but out-of-state travelers from more expensive markets in California, Colorado, New York and beyond see Texas as a bargain by comparison.
“If you look across the country…it’s still very affordable to live here in the state of Texas. That’s why I think Texas is very attractive in the long term,” Winniford said.
