Builder sentiment sours heading into summer
The NAHB’s June confidence index was the third-lowest in the past 13 years as new home prices weaken and buyers remain on hold.
Home builders are seeing a rough market ahead — and that could affect a sector that's been the one silver lining for the housing market in the past year.
Builder confidence declined this month, according to the National Association of Home Builders. Its Housing Market Index, which gauges the health of the new home market, was 32 in June, down two points from May, and the third-lowest monthly reading since the tail end of the Great Recession in 2012.
The two lower readings occurred in December 2022, when the index dipped to 31 following a surge in mortgage rates that autumn, and at the start of the pandemic in April 2020, when it plummeted to 30 but then recovered quickly.
Familiar headwinds: A combination of elevated mortgage rates, tariffs and economic uncertainty is driving this pessimism, according to NAHB Chairman Buddy Hughes. The survey found that 37% of builders were cutting prices in June, the highest percentage since the NAHB began tracking price cuts on a monthly basis in 2022.
Housing starts expected to stall: All three components of the index were all down in June compared to May. Builders' perceptions of current sales conditions fell two points to 35, their sales expectations for the next six months dropped two points to 40, and their assessment of buyer traffic was down two points to 21, the lowest since November 2023.
As a result, the NAHB is forecasting a decline in single-family starts for 2025.
"Rising inventory levels and prospective home buyers who are on hold waiting for affordability conditions to improve are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets," NAHB Chief Economist Robert Dietz said in a news release.
Permits have already fallen: The latest construction data aligns with the tepid builder sentiment and predictions of a slowdown in building projects. Housing permits for single-family homes fell 4.7% year-over-year in April, marking the fourth straight month of declines.
The biggest slowdowns were taking place in the South and West; the Northeast was the only region to post an increase in single-family home permits. Those declines mirror builder sentiment in those regions, which was highest in the Northeast (43) and lowest in the South (33) and West (28).
A gloomier path ahead? New home sales had been a bright spot in an otherwise sluggish market this spring, with builders better positioned to offer financing incentives through interest rate buydowns.
But material costs have risen despite some tariff pauses, making it harder for builders to be flexible.
Existing home sales this spring have also trailed last year's pace. Given that last year's 4.06 million sales total was the lowest in 30 years, 2025 could set a new low if mortgage rates remain elevated and home prices continue to rise.