The National Association of Home Builders’ Housing Market Index dropped to 42 in February, the lowest level in five months, as builders expressed concerns over tariffs raising costs. Current sales conditions and buyer traffic both fell, as did sales expectations for the next six months. Builders are already facing higher mortgage rates and home prices compared to a year ago, impacting affordability. Uncertainty over tariffs on materials like appliances and lumber has added to their concerns about costs. Single-family housing starts are lower than a year ago, despite low inventory of existing homes for sale. Builder sentiment had been improving until recently, but the drop right before the spring market suggests even less supply. Some homebuilders have noted a decline in buyer demand in recent earnings reports, attributing it to high prices and rates impacting affordability. The share of builders lowering prices and offering incentives decreased in February as they may be less effective in attracting buyers given the current market conditions. With rates remaining high, the pool of potential buyers may be shrinking, making incentives less valuable for builders.
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