Builder Confidence Falls on Tariff and Housing Price Considerations

Builder sentiment fell sharply in February over considerations on tariffs, elevated mortgage charges and excessive housing prices.

Builder confidence available in the market for newly constructed single-family properties was 42 in February, down 5 factors from January and the bottom stage in 5 months, based on the Nationwide Affiliation of Dwelling Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

Whereas builders maintain out hope for pro-development insurance policies, notably for regulatory reform, coverage uncertainty and value components created a reset for 2025 expectations in the newest HMI. Uncertainty on the tariff entrance helped push builders’ expectations for future gross sales quantity all the way down to the bottom stage since December 2023.

With 32% of home equipment and 30% of softwood lumber coming from worldwide commerce, uncertainty over the size and scope of tariffs has builders additional involved about prices. Reflecting this outlook, builder responses collected previous to a pause for the proposed tariffs on items from Canada and Mexico yielded a decrease HMI studying of 38, whereas these collected after the introduced one-month pause produced a rating of 44. Addressing the elevated tempo of shelter inflation requires bending the housing price curve to allow including extra attainable housing.

Incentive use may be weakening as a gross sales technique as elevated rates of interest scale back the pool of eligible dwelling patrons. The newest HMI survey additionally revealed that 26% of builders reduce dwelling costs in February, down from 30% in January and the bottom share since Might 2024. In the meantime, the typical worth discount was 5% in February, the identical charge because the earlier month. The usage of gross sales incentives was 59% in February, down from 61% in January.

Derived from a month-to-month survey that NAHB has been conducting for greater than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of present single-family dwelling gross sales and gross sales expectations for the subsequent six months as “good,” “honest” or “poor.” The survey additionally asks builders to charge visitors of potential patrons as “excessive to very excessive,” “common” or “low to very low.” Scores for every element are then used to calculate a seasonally adjusted index the place any quantity over 50 signifies that extra builders view circumstances nearly as good than poor.

All three of the main HMI indices posted losses in February. The HMI index gauging present gross sales circumstances fell 4 factors to 46, the element measuring gross sales expectations within the subsequent six months plunged 13 factors to 46, and the gauge charting visitors of potential patrons posted a three-point decline to 29.

Wanting on the three-month shifting averages for regional HMI scores, the Northeast fell three factors in February to 57, the Midwest moved two factors decrease to 45, the West edged one-point decrease to 39 and the South held regular at 46. The HMI tables will be discovered at nahb.org/hmi.