Builder sentiment took a significant reduction in February, declining by five index points over tariff, building cost and mortgage rate concerns, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
The index, measured on a zero to 100 spectrum, with anything higher than 50 indicating a majority of homebuilders are confident, came in at a 42 readout for the month of February, down five points from a 47 January reading in an expression of depressed expectations over newly proposed tariffs on building materials.
NAHB Chief Economist Robert Dietz reflected that the temporary pause on tariffs imposed on Mexico and Canada may have saved the index from a more severe reading.
“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,” said Dietz. “Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44. Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing.”
The major components of the index all took a hit, with the outlook over the next six months declining by the steepest amount. The component which measures sales expectations went from positive to negative, falling to 46 all the way from 59. The HMI measuring current sales conditions fell by four points to 46, and the gauge which charts prospective buyer traffic declined three points to 29.
The HMI survey also revealed that 26% of homebuilders cut home prices for the month of February, down from 30% in January, and the lowest such percentage since May 2024. The average price reduction for new builds was 5%, the same as last month. Sales incentives declined by 2%—from 61% in January to 59% in February.
These readings have tempered the expectations that 2025 might have been a more favorable market due to a relaxed regulatory environment. NAHB Chairman Carl Harris detailed that incentive use is also waning as a strategy due to elevated rates that are constricting the buying market.
“While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said Harris. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023. Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible homebuyers.”
Regional breakdown
The three-month moving average of regional HMI scores showed declines in every region except the South. The Northeast declined by three points to 57 in February, the largest such index decline.
This was followed by the Midwestern region with a two-point decline to 45, a small downward tick in the West by one point to 39, concluding with the South, which experienced no movement and held at 46.
For the full report, click here.
