Sentiment among U.S. single-family homebuilders has dropped to its lowest level in five months. This decline is mainly due to concerns over tariffs, which could increase their costs.
The National Association of Home Builders’ Housing Market Index (HMI) fell by 5 points from January, to 42. A reading below 50 indicates negative sentiment. A year ago, the index stood at 48.
“While builders are hopeful for pro-development policies, policy uncertainty and rising costs have led to a shift in 2025 expectations,” said NAHB Chairman Carl Harris, a homebuilder from Wichita, Kansas.
The HMI’s three components showed declines: current sales conditions fell 4 points to 46, buyer traffic dropped 3 points to 29, and sales expectations for the next six months fell 13 points to 46. This is the lowest level since December 2023.
Homebuilders are already facing high mortgage rates. The 30-year fixed mortgage rate exceeded 7% in January and February. Home prices are also rising, further weakening affordability.
Though President Trump’s proposed tariffs on Canada and Mexico were delayed by a month, builders are still concerned about higher costs.
“Since 32% of appliances and 30% of softwood lumber come from international trade, uncertainty over tariffs is raising concerns,” said NAHB Chief Economist Robert Dietz.
Sentiment had been improving since August, driven by hopes for lower mortgage rates and pro-development policies. However, single-family housing starts are still down compared to last year, despite a limited supply of existing homes.
The drop in builder sentiment, just ahead of the spring market, suggests potential further limitations in housing supply. Several homebuilders have noted a decline in buyer demand.
“Despite the Federal Reserve lowering short-term interest rates, high mortgage rates in the fourth quarter impacted buyer demand,” said Ryan Marshall, CEO of PulteGroup, in their earnings report.
The percentage of builders lowering prices fell to 26% in February. This is the lowest share since May 2024. Other sales incentives have also dropped.
This decline may reflect the decreasing effectiveness of incentives. High prices and mortgage rates have reduced the pool of buyers who are influenced by these offers, according to the NAHB.
