Sentiment among single-family home builders nationwide fell to its lowest level in five months in February, largely due to concerns about tariffs that would greatly increase its costs.
The National Housing Builders Association’s Housing Market Index (HMI) fell 5 points from January to 42 points. Anything under 50 is considered a negative emotion. Last February, the index was 48.
NAHB Chairman Carl Harris said: “Builders have hope in supporting development policies, especially in regulatory reforms, but policy uncertainty and cost factors have brought expectations in recent HMIs to 2025. Reset.”
Among the three components of the index, current sales conditions fell by 4 points, 46 points, buyer traffic fell by 3 points to 29 points, and sales expectations for the next six months fell by 13 points to 46 points. This last component hit its lowest level since December 2023.
Builders are already facing rising mortgage rates. The 30-year fixed average interest rate is over 7%, with January and February in the range of 6%. House prices are also higher than a year ago, further weakening affordability.
While President Donald Trump’s initial proposal for tariffs on Canada and Mexico came into effect in early February, it was delayed by about a month, builders still expect higher costs.
“32% of appliances and 30% of cork wood come from international trade, and uncertainty about the size and scope of tariffs has brought builders further attention to costs,” said Robert Dietz, chief economist at NAHB.
Hope for home builders has been growing steadily since August as mortgage rates are expected to be lower and, as the builders have pointed out, potential pro-development policies. Although existing housing supply is lean, single-family housing is starting at a lower trend than a year ago.
Builder sentiment is falling, just before the most important spring market, which may be less supply in the market. Several home builders pointed to a pullback in buyer demand in recent earnings reports.
“While the Fed takes action to lower short-term interest rates, mortgage rates have risen in the fourth quarter, affecting buyers’ demand as home buyers continue to face affordability challenges,” said Ryan Marshall, CEO of Pultegroup.
The share of lowering prices fell to 26% in February, down from 30% in January, the lowest share since May 2024. Other sales incentives have also declined.
This may be because incentives are becoming increasingly effective in attracting buyers, as high prices and high interest rates reduce these gains, according to NAHB.
When buyers’ prices are solid, no incentives will help, and interest rates remain high, marginal buyers’ library may be shrinking. Offering incentives to buyers, regardless of price or price, reduces the value of the builder.
