U.S. Homebuilders Sound Alarm as Tariffs Push Sentiment to 5-Month Low

The National Association of Home Builders (NAHB) released its Housing Market Index (HMI) on February 18, 2025, revealing a significant drop in builder sentiment due to concerns over tariffs, elevated mortgage rates, and high housing costs. The HMI fell to 42 in February, down five points from January and the lowest level in five months. This decline reflects the uncertainty and challenges faced by homebuilders in the current market.

NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan., attributed the decline in sentiment to policy uncertainty and cost factors. He noted that uncertainty on the tariff front helped push builders' expectations for future sales volume down to the lowest level since December 2023. Additionally, the use of sales incentives may be weakening as elevated interest rates reduce the pool of eligible home buyers.

NAHB Chief Economist Robert Dietz highlighted the impact of tariffs on building material costs, stating that uncertainty over the scale and scope of tariffs has builders further concerned about costs. He noted that 32% of appliances and 30% of softwood lumber come from international trade, making builders more vulnerable to cost fluctuations.

The latest HMI survey also revealed that 26% of builders cut home prices in February, down from 30% in January. Meanwhile, the average price reduction was 5% in February, the same rate as the previous month. The use of sales incentives was 59% in February, down from 61% in January.

All three major HMI indices posted losses in February. The HMI index gauging current sales conditions fell four points to 46, the component measuring sales expectations in the next six months plunged 13 points to 46, and the gauge charting traffic of prospective buyers posted a three-point decline to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points in February to 57, the Midwest moved two points lower to 45, the West edged one-point lower to 39, and the South held steady at 46.

The decline in builder sentiment comes as no surprise, given the persistent challenges faced by the housing market. Tariffs on building materials, such as steel, aluminum, and lumber, have significantly increased the cost of constructing new homes in the U.S. These tariffs, combined with elevated mortgage rates and high housing costs, have created a perfect storm for homebuilders, making it difficult for them to maintain profitability and affordability for consumers.

As the housing market continues to grapple with these challenges, it is crucial for policymakers, industry professionals, and consumers to consider the potential long-term effects of these tariffs on housing affordability. The expected long-term effect of these tariffs on the affordability of housing for first-time homebuyers and low-income families is likely to be negative, as increased construction costs and reduced supply could push home prices even higher and intensify the existing affordability crisis.

Regional variations in the reliance on imported building materials can also influence the impact of tariffs on home prices and the housing market as a whole. Areas heavily reliant on imported materials may experience more significant effects compared to regions with a higher domestic supply. This regional disparity in the impact of tariffs highlights the importance of understanding the unique challenges faced by different areas of the country and the need for targeted policy solutions to address these issues.

In conclusion, the decline in builder sentiment, as reflected by the Housing Market Index, underscores the significant challenges faced by the U.S. housing market. Tariffs on building materials, elevated mortgage rates, and high housing costs have created a perfect storm for homebuilders, making it difficult for them to maintain profitability and affordability for consumers. As the housing market continues to grapple with these challenges, it is crucial for policymakers, industry professionals, and consumers to consider the potential long-term effects of these tariffs on housing affordability and to work together to find solutions that address the unique needs of different regions of the country.