US housing starts and builder confidence in single-family home construction declined in the latest available data on higher-for-longer borrowing costs and tariff concerns.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell to 42 in February, a five-point decrease from the previous month and the lowest level since September 2024. Any score under 50 indicates a bearish sentiment.
The HMI's three components – current conditions, sales expectations for the next six months and traffic of prospective buyers – each declined by at least 3 points in February. The overall decrease was highlighted by a 13-point plummet from 59 to 46 on future sales expectations, the second-largest month-to-month drop ever, trailing only the Covid-19 related 39-point fall from March to April 2020.
"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," NAHB chairman Carl Harris said.
A decline in privately owned housing permits in January also reflected builders' lower confidence in the market. Permits were at a seasonally-adjusted annual rate of 1.483mn units in January, a slight increase from December's rate but 1.7pc lower than the year prior. January's rate was also below the rates of each of the first three months of 2024.
If January's lower annual comparison were to extend through the rest of the first quarter, it could set 2025's pace of new housing construction behind the prior year through the peak season that lasts from the spring to early summer, as permits serve as a forward indicator for new housing starts.
Private starts fell 9.8pc (±12.5pc) from December, according to the US Census Bureau. However, this is just a 0.7pc decrease (±13pc) from January 2024. Single-family starts specifically fell 8.4pc (±10.1pc) from the prior month.
Some construction companies have shared similar sentiments about the state of private residential construction on recent earnings calls, with Vulcan and Martin Marietta expecting depressed housing markets this year because of higher-for-longer interest rates.
The CME FedWatch tool continued to reflect a 97.5pc probability that the Fed would hold its target interest rate steady at its next meeting on 19 March. Rate cuts could continue to be delayed as US inflation held near a two-year high last month.
Tariff concerns also weighed on builder sentiment. February's survey was issued prior to President Donald Trump's pause on tariffs against Canadian and Mexican imports. Initial responses received before the tariffs expected start generated an HMI of 38 – an even more bearish outlook than the official February index of 42 – while responses received after generated an HMI of 44, NAHB chief economist Robert Dietz said.
Despite weaker housing sentiment, roofing flux prices in the midcontinent and Gulf coast both rose in January from the prior month. The former increased by $10/st to $457.50/st, while the latter jumped $17.50/st to $475/st.
Some market participants attributed the increase to higher production costs and lower refining margins. WTI crude values increased by $4.34/bl from 26 December to 3 January, and the Chicago 6-3-2-1 crack spread dropped to $17.08/bl on 7 January, its lowest level since early 2021.
