Homebuilder sentiment drops to five-month low on tariff costs

Confidence among US homebuilders dropped in February to the lowest since before President Donald Trump took office as high mortgage rates and concern over tariffs sapped much of initial optimism for the new presidential administration.

A gauge of housing market conditions from the National Association of Home Builders and Wells Fargo fell 5 points to 42, the lowest since September. The figure was below all estimates in a Bloomberg survey of economists.

Reflecting growing concerns, a component of the NAHB's overall index measuring expectations for the next six months fell 13 points to 46 this month, its biggest drop since the start of the pandemic. Meantime, components measuring present sales and traffic of prospective buyers also declined. 

"While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations," NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas, said in a prepared statement.

Builder confidence had surged following Trump's election win in November as contractors looked forward to less regulation and the prospect of more economic growth. However, home financing costs stuck around 7% in recent months have sapped demand and sent builder stocks tumbling.

Meantime, the administration's plans for tariffs on Canada and Mexico, which are delayed until at least March, and a 10% levy already in effect on Chinese goods threaten to raise prices in an industry already struggling to retain buyers.

"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," NAHB Chief Economist Robert Dietz said in a prepared statement.

Given home prices are still near record highs across the country and mortgage rates will probably stay elevated for the foreseeable future, incentives may be losing their power with such a limited pool of eligible buyers. The shares of builders who cut prices or used sales incentives both declined in February, NAHB said.

Builder confidence fell in all four US regions, including the biggest drop in the Northeast since April 2020.

The federal government will release January data on new residential construction on Wednesday.