
Builder sentiment inched higher to begin 2025 with renewed hopes for economic growth and an improved regulatory environment. However, builders still have reservations about the impacts of building material tariffs and costs. Additionally, there are concerns about how a larger government deficit may put upward pressure on both inflation and mortgage rates.
Taken together, the optimism and concerns resulted in a single point improvement in the NAHB/Wells Fargo Housing Market Index (HMI) to 47 in January.
“Builders are facing continued challenges for housing demand in the near-term, with mortgage rates up from near 6.1% in late September to above 6.9% today,” says NAHB chairman Carl Harris. “Land is expensive and financing for private builders remains costly. However, there is hope that policymakers are taking the impact of regulatory hurdles seriously and will make improvements in 2025.”
The January HMI survey revealed 30% of builders cut prices in January. The share of builders cutting prices has been between 30% and 33% since July 2024. The average price reduction for those who did cut prices was 5%, the same rate as in December. The use of sales incentives has remained between a range of 60% and 64% since June, with 61% of builders using incentives in January.
“NAHB is forecasting a slight gain for single-family housing starts in 2025, as the market faces offsetting upside and downside risks for an improving regulatory outlook and ongoing elevated interest rates,” says NAHB chief economist Robert Dietz. “And while ongoing, but slower easing from the Federal Reserve should help financing for private builders currently squeezed out of some local markets, builders report cancellations are climbing as a direct result of mortgage rates rising back up near 7%.”
The NAHB/Wells Fargo HMI gauges builder perceptions of current home sales and sales expectations for the next six months as “good,” “fair,” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average,” or “low to very low.” Scores of each component are used to calculate a seasonally adjusted index where any reading above 50 indicates more builders view conditions as good than poor.
The index tracking current sales conditions rose three points to 51 while the gauge measuring traffic of prospective buyers posted a two-point gain to 33.
The component measuring sales expectations for the next six months, though, fell six points to 60. The decline was mostly attributed to the elevated interest rate environment. The NAHB notes that while the decline serves as a cautionary note, the future sales component index value remains the highest of the three sub-indices and well above the break even reading of 50.
The three-month regional moving average HMI increased five points to 60 in the Northeast, one point to 47 in the Midwest, and one point to 46 in the South. The three-month moving average in the West fell one point to 40 in January.