Homebuilder confidence falls to lowest level in five months amid tariff concerns, high mortgage rates

Homebuilders are feeling less optimistic about the housing market as they navigate concerns over tariffs, elevated mortgage rates, and high housing costs.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index was 42 in February, a five-point drop from January and the lowest level in five months. Economists were expecting a reading of 46, per Bloomberg data.

A reading under 50 indicates that more builders view conditions as poor than good.

“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,” NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas, wrote in a statement.

One of the major cost concerns stems from President Trump’s executive order imposing 25% tariffs on all imported steel and aluminum products, set to take effect in March. According to the National Association of Home Builders, this could raise residential construction costs.

This tariff move comes after Trump announced a month pause on other tariffs for Canadian and Mexican goods.

“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,” NAHB chief economist Robert Dietz wrote in a statement.

At the same time, builders continue to grapple with elevated mortgage rates. Data from Freddie Mac shows that the 30-year fixed mortgage rate is hovering around 7%, further dampening demand.

The NAHB survey found 26% of builders cut home prices in February, down from 30% in January and the lowest share since May 2024. Meanwhile, 59% of builders used sales incentives in February, a slight decrease from 61% in January.

NAHB’s chief economist Robert Dietz said he expects “incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers.”

Indeed, in the survey, the gauge measuring sales outlook over the next six months plunged 13 points to 46 and hit its lowest level since December 2023. The prospective buyer traffic gauge posted a three point decline to 29. The NAHB index of current sales conditions dropped four points to 46.

Dani Romero is a reporter for Yahoo Finance. Follow her on X @daniromerotv.

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