Homebuilder Sentiment Declines Amid Tariff, Cost Concerns
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index slid to 42 in February, the lowest level in five months, down from 47 the previous month and below the consensus of 46, as “policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said NAHB chairman Carl Harris in a statement.
Meanwhile, In February, around 26% of homebuilders reduced home prices, a decrease from 30% in January and the lowest share since May. The average price reduction remained at 5%, unchanged from the previous month. Additionally, the use of sales incentives was 59%, slightly down from 61% in January.
“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB chief economist Robert Dietz.
In February, all three major HMI components experienced losses. The index measuring current sales conditions dropped by four points to 46, while the component tracking sales expectations for the next six months fell by 13 points to 46 as well. The index monitoring traffic from prospective buyers saw a three-point decline, settling at 29.
“We believe the single-family housing market will continue to face challenges in 2025. The interest rate on a 30-year fixed mortgage remains just under 7%, which is high enough to keep first-time home buyers on the sidelines,” Art Jones, senior director, commercial real estate research, Principal Asset Management, shared with Connect. “A wide majority of existing homeowners are locked into rates below 4%, offering little incentive to move in the current environment.”
“If there is any good news in today’s report, it can be found in the potential demand for rental properties such as traditional multifamily and single-family rental properties,” he added. “Rental demand has re-accelerated through the end of 2024 and is starting to relieve pressure on select metros that experienced overdevelopment following the pandemic.”