Homebuilder Sentiment Hits a Five-Month Low: What’s Brewing in Real Estate?

Homebuilder sentiment in the U.S. fell to its lowest level in five months in February, as concerns over construction tariffs and elevated mortgage rates weighed on market confidence. The National Association of Home Builders (NAHB) Housing Market Index (HMI) dropped five points to a reading of 42, marking a significant decline from January’s level of 47. Any reading below 50 signals negative sentiment among single-family homebuilders, pointing to softening market conditions.

The decline reflects mounting anxieties over the tariff impact on the housing sector, particularly in relation to softwood lumber and other key building materials impacted by international trade restrictions. Homebuilders have warned that new construction tariffs could further inflate homebuilder costs, exacerbating affordability challenges. According to the NAHB, approximately 30% of softwood lumber used in U.S. home construction comes from imports, making the industry highly sensitive to trade policies.

“With supply chain disruptions and cost escalations from international trade policies, homebuilders are confronting increased cost factors just as the crucial spring market approaches,” said Carl Harris, NAHB Chairman and a homebuilder based in Wichita, Kansas.

Beyond tariffs, elevated mortgage rates are contributing to weaker buyer demand. The average fixed mortgage rate on a 30-year loan has remained above 7% for much of January and February, restricting housing affordability and pricing out marginal buyers. Meanwhile, home prices remain at historically high levels, intensifying affordability concerns.

Of the HMI’s three components, current sales conditions declined by four points to 46, buyer traffic dipped three points to 29, and sales expectations for the next six months saw a significant 13-point drop to 46—its lowest level since December 2023.

In an effort to attract buyers amid affordability struggles, some single-family homebuilders have continued offering buyer incentives, though their effectiveness is diminishing. The share of builders lowering prices fell to 26% in February, down from 30% in January—the lowest level since May 2024. According to NAHB Chief Economist Robert Dietz, incentives may not be enough to offset affordability constraints for buyers already priced out of the market.

Despite these challenges, builders are looking toward pro-development policies and regulatory reform to ease supply constraints and bolster the market. However, with housing starts lagging behind historical norms, the outlook remains cautious.

As the industry navigates these uncertainties, the trajectory of mortgage interest rates, policy shifts, and trade negotiations will play a crucial role in shaping homebuilding activity in 2025.