For home builders, a "skeptical optimism" amid elevated interest rates and construction costs

The Housing Market Index from the National Association of Home Builders and Wells Fargo fell by one point in February, to 36 out of 100. The index hasn’t been above 50 — a sign of confidence in the market — since spring 2024.

That’s the national picture. But real estate is all about location, location, location.

Even in a mediocre home building environment with elevated interest rates and building costs, Scott Norman, executive director of the Texas Association of Builders, does not worry about the Lone Star State. 

“Two things that drive housing starts historically are population growth and job growth, and Texas continues to lead in both of those categories,” he said.

Norman expects people to continue to move to Texas in droves. 

“All those people have to sleep somewhere at night, we say. And so they need housing of some form,” he said.

The Houston metro area specifically will continue to be a bright spot, said Chris Bolio with the Greater Houston Builders Association.

“There is a … skeptical optimism,” he said.

Skeptical because, even with strong demand, you can’t escape headwinds.

“I think tariffs, I think immigration, I think the amount of the governmental oversight cost associated with with development and with construction… They are all big red flags,” Bolio said.

But they’re red flags builders are getting used to.

And in Atlanta, another southern real estate market, Wayne Hiott with the Greater Atlanta Home Builders Association said companies there haven’t been able to build as quickly as they’d like. 

“Our biggest struggle is bringing a developed lot to the to the public and and bringing a developed lot that is, you know, priced, where the consumer can afford it,” he said.

Hiott said new regulations like energy and building codes have made construction more costly without adding to home values.  

Further north, Dawn Crandall with the Home Builders Association of Michigan said new single family permits there are still lagging behind the level of new housing needed.  

“In construction, time is money. So when you have those delays, it costs more. So it's looking at lot size requirements. It's looking at streamlining the process,” she said.

Crandall is optimistic that a new bipartisan push in Michigan for zoning reform could boost home building in her state.