Optimism Among Home Builders Remains Low

With concerns about high interest rates and rising material costs, builder confidence has fallen over the past month. In May, the National Association of Home Builders/Wells Fargo Housing Market Index fell by six points month-over-month to 34, matching November 2023 levels and marking the lowest point since December 2022. Additionally, 34% of builders reduced home prices in May, with the average price reduction at 5%. This is an increase from the 29% of builders who cut prices in April and the largest increase since the 36% of price cuts recorded in December 2023.

The spring home buying season has gotten off to a slow start as persistent elevated interest rates, policy uncertainty and building material cost factors hurt builder sentiment in May. Builders expect future trade negotiations and progress on tax policy will help stabilize the economic outlook and strengthen housing demand. Initial trade arrangements with the United Kingdom and China are a welcome development for the macroeconomy. Still, the overall actions on tariffs in recent weeks have had a negative impact on builders, as 78% reported difficulties pricing their homes recently due to uncertainty around material prices.