Jamie Spencer
US homebuilders are growing more pessimistic as they contend with economic uncertainty, rising tariffs, and high housing costs. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index fell to 39 in March, down three points from February and the lowest level since August 2024.
According to Bloomberg data, economists had expected a reading of 42. A reading below 50 indicates that more builders view market conditions as poor rather than good.
Tariffs and Supply Chain Challenges Weigh on Builders
Builders are struggling with higher costs, exacerbated by new tariffs imposed by President Donald Trump. The administration implemented a 25% tariff on all imported steel and aluminum last week, which is expected to drive up construction expenses.
“Builders continue to face elevated building material costs that are exacerbated by tariff issues, as well as other supply-side challenges that include labor and lot shortages,” said NAHB chair Buddy Hughes, a homebuilder from Lexington, N.C.
The NAHB survey found that tariffs are adding an average of $9,200 to the cost of a new home, further straining affordability.
High Mortgage Rates Compound the Problem
Alongside tariffs, builders are dealing with stubbornly high mortgage rates, which have remained around 6.6%, according to Freddie Mac. This has contributed to sluggish housing activity and weakened buyer demand.
To counter declining sales, 29% of builders cut home prices in March, up from 26% in February. The average price reduction remained at 5%. Additionally, 59% of builders offered sales incentives to attract buyers.
Housing Market Indicators Decline
Several key indicators in the NAHB survey point to continued weakness in the housing market:
- The index measuring current sales conditions dropped three points to 43, the lowest since December 2023.
- The gauge for prospective buyer traffic fell five points to 24, indicating fewer potential homebuyers are visiting developments.
- The measure of sales expectations over the next six months remained steady at 47, suggesting limited optimism among builders.
What’s Next for the Housing Market?
Uncertainty surrounding trade policy, interest rates, and supply chain costs continues to weigh on homebuilder sentiment. Some economists warn that if tariffs remain in place, housing affordability could worsen, leading to further declines in new home sales.
