The Housing Market Index (HMI) of the National Association of Home Builders (NAHB) in the United States has experienced a significant drop of 5 points from January, falling to 42 points. A reading below 50 on this index is considered to reflect negative sentiment. In comparison, the index was at 48 points during the same period last year.
According to NAHB Chairman Carl Harris, “While home builders remain hopeful about policies that are favorable for development, especially regulatory reforms, policy uncertainties and cost factors have led to a reset in expectations for 2025 in the recent HMI readings.”
Among the three components of the index, current sales conditions decreased by 4 points to 46 points, buyer traffic dropped by 3 points to 29 points, and sales expectations for the next six months saw a significant decline of 13 points to 46 points. The final component of the index reached its lowest level since December 2023.
Despite President Trump’s decision to impose a 25% tariff on products imported from Canada and Mexico, which was originally scheduled to take effect in early February but has been delayed by about a month, builders still anticipate an increase in costs.
Furthermore, Trump has also raised tariffs on steel and aluminum imports to 25% this month.
NAHB Chief Economist Robert Dietz noted, “The uncertainty regarding the scale and scope of tariffs, as 32% of household appliances and 30% of softwood lumber are sourced from international trade, is causing builders to be more concerned about cost issues.”
Since August of last year, the confidence index of home builders has been steadily rising, as the market anticipates a decrease in mortgage rates and potentially beneficial development policies for builders. However, despite limited existing home inventory, the number of single-family housing starts remains lower compared to the same period last year.
The decline in builder confidence comes just before the peak spring home-buying season, which could result in further reduction of housing supply in the market. Several home builders have mentioned the weakening of buyer demand in their recent financial reports.
Ryan Marshall, CEO of PulteGroup, one of the largest residential builders in the United States, stated in their fourth-quarter earnings report, “Despite the actions taken by the Federal Reserve to lower short-term rates, mortgage rates remained high in the fourth quarter, impacting buyer demand as potential homeowners still face affordability challenges.”
(This article references relevant reports from Reuters and CNBC)