Homebuilder confidence fell to its lowest level in five months in February as worries over tariffs, mortgage rates and high housing costs sapped builder sentiment. 

Specifically, builder confidence in the market for new single-family homes dropped five points from January to 42, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). 

“Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023,” NAHB Chairman Carl Harris said. “Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible homebuyers.” 

“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” NAHB Chief Economist Robert Dietz added. “Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44.” 

Meanwhile, total housing starts, which include single family and multifamily, fell 9.8% month over month and 0.7% year over year in January to an annual rate of 1,366,000 starts, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Single-family starts were down 8.4% month over month and 1.8% year over year. 

“Some context on today’s single-family housing starts and permits numbers: when smoothing out the series using a 6-month average, we see a bottoming out and beginning of a positive trend,” First American Deputy Chief Economist Odeta Kushi said. “Growing builder pessimism is a headwind to this positive trend and is a function of several factors. While builders are benefiting from a chronic housing shortage made worse by the ‘seller’s strike’ driven by higher mortgage rates, they still must confront lingering supply-side and affordability headwinds.” 

The HMI is comprised of three components, all of which fell in February. The index gauging current sales conditions fell four points to 46, while the gauge tracking traffic of prospective buyers slid three points to 29. Importantly, the component measuring sales expectations for the next six months plunged 13 points to 46. 

“This marks the largest one-month decline since the early months of the COVID-19 pandemic,” Kushi said. “Apart from the early months of the pandemic, it is the biggest drop in the history of the series, which dates back to 1985.”