North Carolina Construction News staff writer
Builder confidence in the single-family housing market dropped for the second consecutive month in March, reaching its lowest level in seven months, according to the latest NAHB/Wells Fargo Housing Market Index (HMI). The decline is compounded by the introduction of new tariffs today and ongoing material shortages that are further inflating the cost of building homes.
The HMI, which gauges builder sentiment based on a survey of single-family homebuilders, dropped three points to a reading of 39 in March, down from 42 in February. A reading below 50 indicates more builders are pessimistic than optimistic about market conditions.
Key components of the HMI showed further signs of weakening. Builders’ assessments of current sales conditions fell three points to 43. Sales expectations for the next six months remained stable at 47, but traffic from prospective buyers dropped sharply, falling five points to just 24.
“High interest rates, elevated home prices, and now new tariffs are all combining to put serious pressure on the housing market,” said NAHB Chairman Alicia Huey. “The latest tariffs, which took effect at midnight last night, will increase construction costs by an average of $9,200 per home, further exacerbating affordability challenges for both builders and buyers.”
Tariffs imposed on goods from China, the EU, Canada, Japan, and Mexico are expected to have a significant impact on construction costs, particularly in states like North Carolina, Delaware, and Utah, where new construction makes up a larger share of the market. The tariffs affect a wide range of building materials, including lumber and steel, which will push up prices just as builders are already grappling with high mortgage rates and material shortages.
In addition to the tariffs, supply chain issues and lingering labor shortages from the COVID-19 pandemic are further hampering the ability of domestic manufacturers to meet the demand for materials. The NAHB estimates that 85% of all softwood lumber products are sourced from Canada, and while some exemptions were granted to producers in Canada and Mexico, these will only partially stabilize a market that has seen new building permits decline by 6.8% in February.
The HMI survey also revealed that 29% of builders reduced home prices in March, up from 26% in February. The average price reduction remained at 5%, the same as the previous month. Additionally, 59% of builders used sales incentives, unchanged from February, to help attract buyers amid these rising costs.
The HMI’s three components—current sales, sales expectations, and buyer traffic—are weighted to track builder sentiment, with the most weight given to current sales conditions. The sharp drop in buyer traffic signals that many potential buyers are struggling with affordability, as high mortgage rates and increased material costs make it difficult to enter the market.
Interest rates remain a key factor in the current housing market. Builders and homebuyers face challenges as mortgage rates stay elevated, limiting buyers’ purchasing power. Additionally, the higher borrowing costs are impacting builders’ ability to secure financing for new construction projects.
Despite these challenges, the outlook for future sales remains relatively stable for many builders, though uncertainty surrounding buyer demand and escalating costs leaves the housing market in a fragile position.
The HMI, which measures builder confidence on a scale of 0 to 100, is a critical tool in tracking market trends and provides insight into the overall health of the housing sector.