Builder Confidence Wavers Amid Tariff Uncertainty

Monday, April 21, 2025

• Hammered by doubt: Rising costs, softening demand, and tariff uncertainty are weighing on builder confidence—but the true impact on housing starts may still be months away.

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Essential Metrics

Builder Confidence Wavers Amid Tariff Uncertainty

The country’s housing stock has steadily grown since the pandemic, with housing starts remaining elevated even as higher interest rates cooled much of the broader real estate market. Although inflation has driven up construction costs, persistent housing shortages across many regions have helped sustain demand for both single‑family and multifamily development.

That demand may finally be showing signs of softening. Builder confidence in the market for newly built single-family homes remained in negative territory in April, despite a modest one-point uptick to 40 on the NAHB/Wells Fargo Housing Market Index. The increase was largely attributed to a recent dip in mortgage rates, which likely nudged some hesitant buyers back into the market. Still, broader economic anxiety appears to be weighing heavily on the industry.

Trump’s newly announced “reciprocal” tariffs have amplified uncertainty, particularly around material costs. Although Canadian lumber and Mexican drywall were given partial exemptions, they remain subject to baseline tariffs of 10% and 14.54%, respectively. According to the NAHB, 60% of builders said their suppliers have already raised, or plan to raise, material prices in response to the tariffs. On average, material costs are up 6.3%, adding an estimated $10,900 to the price of a typical new home.

“The April HMI data indicates that the tariff cost effect is already taking hold,” said NAHB Chief Economist Robert Dietz. “Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions.”

Even so, it’s likely premature to credit tariffs, or any single policy, for the recent dip in housing starts. Residential developments are typically planned months or even years in advance, meaning most current projects were already in motion before these latest tariffs took effect. Instead, builders may be reacting more to near-term economic pressures. Labor shortages, a lack of buildable lots, and volatile construction costs are all dampening sentiment. In April, 29% of builders reported cutting home prices—unchanged from March—and 61% used sales incentives to help move stagnant inventory.

Meanwhile, building permits, often a leading indicator of future activity, rose by 1.6% in March to a seasonally adjusted annualized rate of 1.482 million, exceeding expectations. But the growth was uneven: single-family permits declined 2%, while permits for buildings with five or more units jumped 10.1%. Regional differences were notable too. The South, West, and Northeast posted modest increases in permits, while the Midwest saw a sharp 9.5% decline.

Builder sentiment also slipped regionally. The April HMI showed the Northeast down seven points, the Midwest down one, the South down three, and the West down two. The component tracking buyer traffic rose slightly to 25, but remains far below the neutral benchmark of 50.

Because there’s a significant lag between shifts in economic conditions and when housing starts are reflected in the data, the true impact of these tariffs is still unfolding. For now, it appears that growing uncertainty—more than any specific policy—is what’s giving builders pause.

Overheard

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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