New Home Builds Drop as Builders Adopt 'Wait-and-See' Approach

The housing market is facing a significant slowdown, with new home builds declining as builders adopt a 'wait-and-see' approach. This cautious stance is driven by several factors, including tariffs and trade uncertainty, elevated mortgage rates, and high housing costs. These challenges have led to a decrease in builder confidence, as reflected in the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reading of 38 in February 2025, the lowest level since December 2023.



The uncertainty surrounding tariffs and trade policies has created a reset for builders' expectations in 2025. This uncertainty has led to a lower HMI reading of 38, compared to the 44 reading after a one-month pause for the proposed tariffs on goods from Canada and Mexico. Additionally, elevated mortgage rates are making it more challenging for many Americans to afford a monthly mortgage payment for a home that suits their needs. This affordability issue pushes potential home buyers to the sidelines, leading to decreased demand in the housing market and a drop in builder sentiment.

High housing costs further contribute to the decline in new home builds. The elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing. This high cost of housing creates a barrier to entry for first-time buyers and low- to middle-income households, exacerbating affordability concerns. As a result, builders are increasingly cutting prices to bolster home sales, with 26% of builders doing so in February 2025, down from 30% in January.



The 'wait-and-see' approach adopted by builders can have significant impacts on the supply and demand dynamics of the housing market. This approach can lead to a reduction in new housing supply, which in turn can affect home prices and affordability in several ways. First, reduced supply and increased demand can drive up prices for both new and existing homes, as potential buyers struggle to find new homes that meet their needs. This dynamic can lead to increased competition for existing homes, further exacerbating affordability issues for first-time buyers and low- to middle-income households. Additionally, the 'wait-and-see' approach can impact home prices directly, as the combination of reduced supply and increased demand can lead to significant price increases.

To mitigate these potential consequences, policymakers and industry stakeholders may need to consider targeted interventions, such as encouraging builders to resume construction by addressing their concerns about tariffs, elevated mortgage rates, and high housing costs. Implementing policies that promote housing affordability, such as inclusionary zoning, density bonuses, and tax incentives for affordable housing development, can also help address the elevated pace of shelter inflation and enable the addition of more attainable housing to the market. By taking these steps, policymakers can help to stabilize the housing market and support a more sustainable recovery.