New-home builders are entering 2026 with something the market hasn’t had much of lately: cautious optimism. In a recent outlook survey conducted by Builder Advisor Group and Avila Real Estate Capital, most homebuilding executives signaled expectations for improved market conditions, even as “demand uncertainty” remains the dominant concern. In this executive conversation, Tony Avila of Builder Advisor Group and Avila Real Estate Capital breaks down what the survey revealed, why builder finance is shifting away from traditional bank lending, where land-banking friction is showing up most, and what private capital is underwriting for in today’s environment.
HousingWire: I understand Builder Advisor Group and Avila Real Estate Capital recently completed a survey of homebuilding executives about their outlook on the industry. What did you learn?
Tony Avila: The biggest surprise was the relatively positive tone. There was an overwhelming feeling that 2026 will be better than 2025 — better orders and a better order pace per community. We’ve heard that directly from builders as well: some are still relatively flat, but most are saying year over year is better.
That said, “demand uncertainty” is still front and center. In the survey, 56% of respondents said market or demand uncertainty is their No. 1 concern. In conversations with both public and private builders, that’s still the core theme — even when they’re seeing signs of improvement. We’ve had builders tell us they’ve seen their best orders in the last few weeks compared to the prior six months.
One nuance worth noting: larger builders were less optimistic. Among respondents over $1 billion in annual revenue, the skew was flatter to down versus last year.
HW: Are we seeing a structural reset in how builders finance growth — meaning more equity-heavy capital stacks and fewer traditional bank-led structures — or is this just a cyclical tightening?
TA: My view is that it’s structural, especially as it relates to land. We’re seeing less bank lending to private builders, with private capital sources stepping in to fill the void. One example: Flagstar shut down its lending to private homebuilders, and we hired that origination team to help pick up the slack. We’ve also seen pullbacks in acquisition, development and construction lending for private developers and builders.
The “why” is important. Banks are penalized by regulators for land loans — higher reserve requirements, higher capital requirements — making those loans less attractive or unprofitable. I don’t see that changing quickly based on recent regulatory history.
There’s also a balance-sheet reality: banks want deposits, and private builders typically don’t carry large cash balances because growth consumes capital (land and work-in-process). That misalignment makes banks more reluctant to extend additional credit, even to otherwise strong operators. Private capital doesn’t have the same deposit constraint, which is one reason private builders are migrating to platforms like ours for construction lending.
HW: Where do you see the biggest friction today between builders and land-banking partners — pricing, pace expectations, or risk allocation?
TA: Pace. Absorption pace has slowed dramatically over the past year-plus, and that slowdown creates pressure that needs to be renegotiated. We’re seeing builders slow the pace of takedowns, and in some instances we’re seeing cancellations of option contracts.
When pace changes, everything downstream gets stressed — timelines, carry costs, and the assumptions that land-banking structures were built on. That’s where the friction is showing up most clearly right now.
HW: What has changed most in buyer psychology since last year?
TA: The biggest shift is that buyers have recently seen some of the best affordability they’ve had in the last four years. From January 2025 to January 2026, average payments fell about 8%, and that’s starting to bring some buyers off the sidelines — especially first-time buyers who are reengaging with the idea of owning a home.
You’re also seeing confidence stabilize. Some of the fear around economic disruption — whether from AI-related layoffs or broader uncertainty — hasn’t materialized the way people worried it might. Unemployment is still around 4.7%, and that supports demand at the margin.
Affordability is still a real constraint, though. Payments remain high relative to median income, and that continues to limit the pool of qualified buyers.
HW: In a market where uncertainty is still high, what types of operators are best positioned to grow right now — highly capitalized nationals, nimble regional privates, or a hybrid model with institutional backing?
TA: The operators best positioned to grow are those with multiple product lines and geographic diversification. If you’re concentrated in a single market segment or a single geography, you’re more exposed to localized slowdowns.
We’re seeing opportunities in markets like the Carolinas, parts of the Pacific Northwest, and even some Midwest markets that are still growing. The ability to move across product types and markets—depending on where demand is strongest — matters more in this cycle than it has in a while.
HW: Do you see private homebuilders continuing to feel pressure on new land acquisition opportunities — particularly as larger publics and global-capital-backed players become more aggressive?
TA: Yes — capital remains a constant challenge, especially for builders outside the top 30 or 40. Land acquisition still requires meaningful upfront capitalization, and many private builders are asking the same question: “How are we going to capitalize this land investment?”
And it’s not only a private-builder issue. Even some public builders are capital constrained and have to be careful about how they allocate capital.
In terms of competitive pressure, the bigger dynamic we’re watching is what happens when a large builder cuts prices. That puts real pressure on smaller builders in the same submarket — especially those trying to preserve margin. We’re seeing cases where smaller builders maintain pricing discipline and still deliver strong margins, but they sacrifice absorption pace because nearby competitors are buying demand with price cuts.
HW: What makes a builder “fundable” today from a private capital standpoint — operational discipline, land strategy, leadership depth, or something else?
TA: It’s a blend, but it starts with experience and track record. We’re looking for evidence of sustained performance — three-plus years of growing profits, historical margins, gross margin and EBITDA margin trends, and whether closings are growing.
We also underwrite the balance sheet: Are they over-levered? Do they have reserves? What does capitalization look like today? From there, we look at the specific projects needing financing and assess expected profitability.
Market matters, too. We’ll evaluate supply-demand balance in the markets where they operate, and sometimes we’ll commission a third-party market study to validate demand and competitive dynamics.
On the flip side, the red flags are straightforward: weak profitability, limited reserves, and limited capital — especially if the company isn’t throwing off profits that can cushion volatility.
We do use a proprietary scoring methodology that incorporates these factors — financial metrics, market dynamics, operational execution, and more — to arrive at a go/no-go decision. That framework has been refined over 30-plus years of working with builders and developers, including metrics like inventory turns and construction velocity — how fast a builder can get in and out of a home.