The confidence of U.S. home builders has seen a slight increase in December, reaching a new high in eight months. However, due to rising construction costs and weak demand, construction activity remains constrained.
The Housing Market Index (HMI) released by the National Association of Home Builders (NAHB) and Wells Fargo for December showed a 1-point increase compared to the previous month, reaching 39, the highest level since April. This aligns with economists’ expectations. However, the index has remained below the 50 threshold for the 20th consecutive month, indicating that most builders are not optimistic about the market outlook.
NAHB pointed out that uncertain economic prospects, along with potential buyers delaying their entrance into the market due to high housing prices and financing costs, continue to be significant factors limiting the market.
NAHB Chairman Buddy Hughes stated, “The market environment remains challenging, with about two-thirds of builders needing to offer various incentives to attract buyers to facilitate transactions. At the same time, tariffs have had a serious impact on construction costs, and builders are facing difficulties with rising material and labor prices.”
The report highlighted that President Trump’s imposition of tariffs on various imported products, including lumber, wood, cabinets, and bathroom cabinets, has directly raised construction costs. Additionally, the Trump administration’s stricter immigration control has weakened the supply of labor in the construction industry. While mortgage rates have significantly decreased from their peak earlier in the year, the sluggish labor market has offset some of the positive effects of the rate drop.
The soft market has led builders to accumulate a large number of unsold homes, reducing their willingness to start new construction projects. NAHB’s survey showed that around 40% of builders in December opted to lower prices for sales, marking the second consecutive month at or above 40%, a rare occurrence since May 2020. The percentage of homes with reduced prices in November was 41%. The average price reduction in December was 5%, lower than the 6% in November.
Regarding promotions, the percentage of builders using various incentives surged to 67%, marking the highest level since the pandemic outbreak, surpassing the stable 65% level since September.
Sub-indexes indicated that the index measuring current sales conditions rose slightly from 41 in November to 42, while the index for expectations for sales in the next six months increased from 51 to 52. The index measuring potential buyer traffic remained unchanged at 26, indicating insufficient actual buying momentum.
Overall, despite signs of improvement in builder confidence, the housing market is unlikely to break free from its slump in the short term, given the pressures of cost and weak demand.