Homebuilders have lots of reasons to feel downbeat about the housing market
Homebuilders have lots of reasons to feel downbeat about the housing market
Housing starts – the number of new homes that began construction – dropped 9.8% between December and January.
Now, there is a caveat: cold temperatures across much of the country might have slowed down some construction.
But it’s not the only sign that homebuilders are feeling not so great at the moment. Their confidence in January dropped to its lowest level in five months, according to the National Association of Home Builders.
The trade group found its members are especially worried about tariffs and mortgage rates that remain close to 7%.
The NAHB did its survey right around the time that President Donald Trump proposed – and then paused – 25% tariffs on imports from Canada and Mexico.
That really weighed on homebuilder sentiment. But builders are hoping for some good news too, said Odeta Kushi, deputy chief economist at First American.
“They’re also thinking that there might be a better regulatory climate for building,” said Kushi.
That’s the case for Bart Frisbie, president of Sterling Homes in Vermont, a state where lawmakers have loosened some permitting laws in the last few years to encourage more housing construction.
Frisbie has a couple projects in the pipeline, including a brand new 32-home neighborhood.
“We’re optimistic that the market is going to keep on rolling forward,” said Frisbie.
But, a lot of his lumber comes from Canada. So if President Trump puts an import tax on that, “it will increase the price of houses dramatically, and that’s the last thing we need, is to raise prices,” said Frisbie.
Because a lot of prospective homebuyers are staying on the sidelines with mortgage rates around 7%, said Susan Wachter, a professor at the University of Pennsylvania.
“Builders are meeting price resistance in the market, and there’s not much that builders can do, because their costs are going up,” said Wachter.
Still, there’s a strong need for new housing. We’re about 1.5 million units short, said Danushka Nanayakkara at the National Association of Home Builders.
So, the demand is there, “the question is, the affordable, the entry level housing, the lack of that is pushing people out of the housing market, and that’s the issue right now,” said Nanayakkara.
If rates stay elevated and tariffs make building materials more expensive, she said, that issue won’t go away.
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