Home Builder Confidence Falls in February

Home builders lose optimism

The supply of for-sale housing, and lack thereof, is perhaps the biggest detriment to home buyers today.

Due to its cascading effect, the inventory scarcity drives up competition and then, prices. But could help be on the way?

For-sale properties are on the rise, but a leading indicator of housing inventory hit a five-month low.

Home builder confidence dwindles

Home builder sentiment ebbs and flows based on consumer demand, market conditions, shifting costs and supply chain status.

Every month, the National Association of Home Builders (NAHB) and Wells Fargo survey NAHB members to measure this sentiment on a 0-100 scale in their Housing Market Index (HMI) report. The survey comprises three components for single-family housing: current home sales, home sales over the next six months, and traffic of prospective buyers.

In February, builder confidence fell to a score of 42, down from a nine-month high of 47 in January and 48 in February 2024. The index reached its lowest point since September 2024.

“While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI,” said NAHB Chairman Carl Harris. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023. Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers.”

The three index components experienced mixed results month-over-month. Current sales decreased to 46 from 51, sales in the next six months dropped to 46 from 60, and prospective home buyer traffic dipped to 29 from 33.

Broken down regionally, home builders in the Northeast had the most optimism with a three-month moving average score of 57. Next came an HMI of 46 in the South, 45 in the Midwest, and 39 in the West.

What other indicators of housing inventory say

In January, active home listings increased 25% annually, according to Realtor.com.

Among the 50 largest cities in the U.S., Denver saw a 54.8% yearly jump in active listing count, trailed by 49.4% in Las Vegas and 45% in Tucson, Ariz. New York experienced the smallest annual gain, inching up 0.3%. Hartford, Conn., and Milwaukee followed with growths of 1.8% and 5%, respectively.

For a look ahead, the Census Bureau and Department of Housing and Urban Development put out a joint Monthly New Residential Construction Report, with three leading indicators of housing inventory.

First, building permits hit a seasonally adjusted annual rate (SAAR) of 1.483 million in January. That figure increased 0.1% month-over-month but dipped 1.7% year-over-year.

Next, housing starts reached a SAAR of 1.366 million, down 9.8% monthly and 0.7% annually. Lastly, a SAAR 1.651 million houses were completed in January, 7.6% higher than December and 9.8% above January 2024.

“As mirrored in our latest builder survey, high construction costs, elevated mortgage rates and challenging housing affordability conditions are causing builders to approach the market with caution,” said Harris. “The uncertain policy environment in terms of a better regulatory climate and impending tariffs offers both upside and downside risks in the near-term.”

The bottom line for home buyers

Between low affordability and not enough listings, home buying has been challenging for prospective borrowers.

If you’re a house hunter, it’ll be helpful to grab every advantage you can. Always be prepared so you can move fast, negotiate your mortgage rate, and see if you qualify for down payment and/or closing cost assistance.

If you’re ready to take the next step to homeownership, reach out to a local mortgage professional.