US Homebuilder Confidence Dips to Pre-Trump Levels as Rates and Tariffs Dampen Optimism

Confidence among US homebuilders has plummeted in February to its lowest point since before President Donald Trump took office. High mortgage rates and concerns over tariffs have significantly dampened the initial optimism for the new administration.

The National Association of Home Builders (NAHB) and Wells Fargo's gauge of housing market conditions fell by 5 points to 42, its lowest since September. This figure was below all estimates from Bloomberg's survey of economists.

Reflecting growing concerns, the NAHB's index measuring expectations for the next six months declined by 13 points to 46, the most significant drop since the start of the pandemic. Additionally, components measuring present sales and prospective buyer traffic also declined.

"While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors have tempered expectations for 2025," said NAHB Chairman Carl Harris in a statement.

Builder confidence surged after Trump's election victory in November as contractors anticipated reduced regulation and economic growth. However, financing costs hovering around 7% have eroded demand and triggered a decline in builder stocks.

The administration's plans for tariffs on Canada and Mexico, delayed until March, and the 10% levy already in effect on Chinese goods pose a threat to industry profits.

"With a significant portion of appliances and softwood lumber coming from international trade, uncertainty over tariffs raises concerns about costs," said NAHB Chief Economist Robert Dietz.

With home prices still near record highs and mortgage rates expected to remain elevated, incentives may lose their effectiveness due to a limited pool of qualified buyers. The number of builders cutting prices or offering sales incentives declined in February.

Builder confidence fell in all four US regions, with the steepest drop in the Northeast since April 2020.

The federal government will release January data on new residential construction on Wednesday.