Report: Builder Confidence Sinks Again in May

Builder confidence in the market for newly built single-family homes clocked in at 34 in May, down six points from April, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This figure ties the November 2023 reading, and it's the lowest since the index hit 31 in December 2022. Th glum outlook is due a cluster of usual suspects, most notably elevated interest rates, tariff concerns, building material costs and a shaky overall economic outlook. 

It should be noted, however, that 90% of the responses received in May were tallied prior to the May 12 announcement that the U.S. and China agreed to diminish tariffs for 90 days.

The NAHB hailed the agreement, with Chairman Buddy Hughes stating:

“The White House announcement that it has reached an agreement with China that will drastically curtail tariffs on each nation’s goods is a positive step as the two countries work to reach a long-term, mutually beneficial trade pact. NAHB urges the administration to move quickly to obtain fair, equitable trade deals with other nations that will result in the elimination of tariffs that are currently hurting building material supply chains and raising construction costs.”

Hughes also chimed in on the latest data. 

“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,” said Hughes, a home builder and developer from Lexington, N.C. “However, the overwhelming majority of survey responses came before the tariff reduction announcement with China. Builders expect future trade negotiations and progress on tax policy will help stabilize the economic outlook and strengthen housing demand.”

The association's lead economist, Robert Dietz, shared more context regarding the implications of tariff deals (or lack thereof).

“Policy uncertainty stemming in large part from the stop-and-start tariff issues has hurt builder confidence but the initial trade arrangements with the United Kingdom and China are a welcome development,” said NAHB Chief Economist Robert Dietz. “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.”

The latest HMI survey also revealed that 34% of builders cut home prices in May, up from 29% in April. That's the highest level since December 2023, when 36% of respondents said they'd cut prices. Meanwhile, the average price reduction was 5% in May (same as April), and the use of sales incentives in May was 61% (also the same rate as the previous month).

All three of the major HMI indices posted losses in May. The HMI index gauging current sales conditions fell eight points in May to a level of 37, the component measuring sales expectations in the next six months dipped slightly to 42 while the gauge charting traffic of prospective buyers dropped two points to 23.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points to 44, the Midwest moved one point lower to 40, the South dropped two points to 37 and the West posted a two-point decline to 33.

Learn more about the NAHB's data here.