HousingWireHousingWire
High mortgage rates, slow sales activity and macroeconomic headwinds have homebuilders feeling less optimistic about the future of the housing market.
That’s according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), which dropped from a reading of 40 in April to 34 in May. It’s the lowest index reading since reaching 31 in December 2022.
The survey gauges how builders feel about single-family home sales and expectations over the next six months. An index reading of 50 indicates that builders view conditions more positively than negatively.
While new-home sales have been a recent bright spot amid a slugging housing market, the space has been rattled by President Donald Trump’s ever-shifting tariffs. These have created cost uncertainty for imported building materials, particularly those from China.
NAHB notes that the survey was conducted prior to the temporary rollback of tariffs against China on May 12.
“Policy uncertainty stemming in large part from the stop-and-start tariff issues has hurt builder confidence but the initial trade arrangements with the United Kingdom and China are a welcome development,” NAHB chief economist Robert Dietz said in a statement.
“Still, the overall actions on tariffs in recent weeks have had a negative impact on builders, as 78% reported difficulties pricing their homes recently due to uncertainty around material prices.”
While fears persist that builders are already adding higher material costs into the final price of a new home, 34% of builders reported that they cut home prices in May. The average price reduction was 5%.
On a three-month moving average, the Northeast region led the decline in perceptions with a three-point drop to 44. The Midwest fell one point to 40. The South and West each dropped two points to 37 and 33, respectively.
“The spring home buying season has gotten off to a slow start as persistent elevated interest rates, policy uncertainty and building material cost factors hurt builder sentiment in May,” NAHB Chairman Buddy Hughes said.
“Builders expect future trade negotiations and progress on tax policy will help stabilize the economic outlook and strengthen housing demand.”
