February 18, 2025

This series fell 5 points in February to 42 after rising 1 point in January.  This is the  lowest reading for this index since September.  Builders are worried about the imposition of tariffs, still high mortgage rates, and the cost of materials.  Keep in mind that the breakeven point for this series is 50 so at 42 it is clear that builders are still being cautious.

NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas said, “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.  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 home buyers.”

Chief Economist Robert Dietz said, ““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.  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.”

Traffic through the model homes fell 3 points in February to 29 after having risen 1 point in January.  Traffic through model homes remains low as still high mortgage rates are reducing the number of interested buyers.

.

The homebuilders expectations index plunged 13 points in February to 46 after having fallen 7 points in January.  The declines in January and February reflect concerns about tariffs that were announce on Canada and Mexico, postponed for a month on those two countries, and then imposed on many other countries.

Mortgage rates are now hovering at the 6.9% mark which is relatively expensive. Both potential home buyers and builders expect them to decline as 2025 progresses given the continuing slowdown in inflation and one rate cut likely by the Federal Reserve.

An acute shortage of homes available for sale has caused prices to climb slowly in recent months  Builders lack of enthusiasm is likely to translate into only a small increase in housing starts in the months ahead.

If home prices are relatively steady, the economy continues to crank out jobs, wages rise, and mortgage rates gradually decline to the 6.2% mark, housing affordability should increase considerably by the end of this year.

We expect GDP growth to be 2.5% in the first quarter and 2.8% growth in 2025.

Stephen Slifer

NumberNomics

Charleston, SC