Builder Confidence Declines in February 2025

In February 2025, builder confidence in the U.S. single-family home market experienced a notable decline, with the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) dropping five points to 42—the lowest level in five months.

Several economic factors have contributed to this downturn:

• Tariff Uncertainty: Proposed tariffs, particularly those affecting construction materials, have raised concerns about escalating costs. Notably, 32% of appliances and 30% of softwood lumber used in homebuilding are imported, making the industry sensitive to international trade policies. 
• Elevated Mortgage Rates: Persistently high mortgage rates have reduced affordability for potential homebuyers, shrinking the eligible buyer pool. With inflation numbers coming in higher than expected in January, buyers are expecting rates to remain elevated longer than previously anticipated. 

• Pessimism Regarding Current Sales Conditions: This part of the index decreased by four points to 46.
• Reduced  Sales Expectations (Next Six Months): Plummeted 13 points to 46, indicating growing pessimism among builders.
• Reduced Prospective Buyer Traffic: Fell three points to 29, suggesting reduced interest from potential buyers.
   

Regionally, the three-month moving averages for HMI scores showed declines across most areas:

• Northeast: Dropped three points to 57.
• Midwest: Decreased by two points to 45.
• West: Edged down one point to 39.
• South: Remained steady at 46.
  

In an effort to preserve their shrinking margins, only 26% of homebuilders reduced prices in February, a decline from 30% in January, with the average price cut remaining steady at 5%. This represents the lowest percentage of builders lowering prices since May 2024, signaling a potential shift in pricing strategies. Additionally, the use of sales incentives, such as mortgage rate buydowns, covering closing costs, and offering home upgrades, dipped slightly to 59% from 61% the previous month. 

Analysts have downgraded major homebuilders due to concerns over cost inflation, rising land prices, and sustained high mortgage rates, all of which are expected to impact the sector negatively in the first half of 2025. The combination of tariff uncertainties, elevated mortgage rates, and high construction costs signals potential challenges ahead for the U.S. housing market in 2025.

Read more: Fannie Mae’s economic forecast for 2025

Franklin Carroll

Franklin Carroll is Kukun's VP of Modelling and Analytics; After finishing his studies at the University of Chicago, he worked at Fannie Mae where he helped build Collateral Underwriter, roll out the Value Verify initiative, and specialized in collateral related and credit related policy.

Published February 25, 2025