Residential Real Estate News
U.S. Builder Confidence Rapidly Declines in February
Elevated mortgage rates, high housing costs and tariffs driving builder concerns
According to the latest National Association of Home Builders / Wells Fargo Housing Market Index, confidence among U.S. home builders in the market for newly constructed single-family homes dropped to 42 in February 2025, marking a five-point decline from January and the lowest level in five months.
"While builders remain hopeful for pro-development policies, particularly regulatory reform, ongoing policy uncertainty and rising costs have led to a reset in 2025 expectations," said NAHB Chairman Carl Harris. "Concerns over tariffs have also contributed to a decline in builder confidence, with future sales expectations falling to their lowest level since December 2023. Additionally, elevated interest rates are shrinking the pool of eligible homebuyers, potentially weakening the effectiveness of sales incentives as a strategy."
NAHB Chief Economist Robert Dietz highlighted that uncertainty surrounding tariffs is another key factor impacting builder sentiment. "With 32% of appliances and 30% of softwood lumber sourced from international trade, builders are increasingly worried about costs," Dietz explained. "Survey responses collected before the announced pause on proposed tariffs for goods from Canada and Mexico resulted in an HMI score of 38, while those collected after the one-month pause was announced showed a score of 44. To address rising shelter inflation, we need to reduce housing costs and increase the supply of attainable homes."
The latest HMI survey also found that 26% of builders reduced home prices in February 2025, down from 30% in January -- the lowest share since May 2024. The average price reduction remained at 5% for the second consecutive month. Meanwhile, the use of sales incentives declined slightly, with 59% of builders offering incentives in February, compared to 61% in January.
All three major HMI components declined in February 2025. The index measuring current sales conditions fell four points to 46, sales expectations for the next six months plunged 13 points to 46, and the gauge tracking prospective buyer traffic dropped three points to 29.
Regionally, the three-month moving average for HMI scores showed mixed results. The Northeast declined three points to 57, the Midwest fell two points to 45, and the West edged down one point to 39. The South remained unchanged at 46.
