Housing starts came in at an annual rate of 1,501,000. While that’s 11.2% higher than January’s dismal reading, it’s down 2.9% year over year.
The data suggests that Trump’s tariff threats — which seemingly change trajectory on a daily basis — are giving homebuilders pause when it comes to breaking ground on new homes.
“The new home sector has been a bright spot in an otherwise very tight housing market,” said Bright MLS Chief Economist Lisa Sturtevant in a statement. “The situation is changing for homebuilders. Although weather may have hindered completions, growing concerns over tariffs are starting to have an impact on new starts and permitting activity,”
The data for housing completions could present challenges for the spring housing market. February’s annual rate of 1,592,000 represents a 6.2% decline compared to a year ago and a 4% month-over-month drop. A bright spot is that single-family completions rose by 7.1% compared to January.
Regionally, the numbers are quite varied, with starts in the Northeast (20.2%), Midwest (-44.4%), South (-5.6%) and West (26.2%) showing huge year-over-year variations. Permits are similar if less dramatic, as the Midwest (3%) and South (1.5%) registered marginal growth while the Northeast (-45.8%) and West (-8.8%) dropped substantially.
The combination of the sluggish housing market and uncertain federal policy is wearing on homebuilders. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) for March shows builder confidence at 39, a three-point drop from February.
Trump’s trade war is a prime reason. He’s implemented a 25% tariff on all steel and aluminum imports, with a number scheduled to take effect on April 2.
After a one-month pause, 25% tariffs on Mexican and Canadian goods that aren’t USMCA-compliant will start that day. So will a global “reciprocal” tariff where the U.S. would implement the same tariff rate on goods that other countries have on the U.S., a move that potentially could upend the entire global economy.
Lumber has also been a target. He’s threatened to add a “reciprocal” tariff on Canadian lumber that would match the tariff Canada has on American lumber. However, Canada does not have a tariff on American lumber, so a reciprocal tariff would remove the existing 14.5% tariff the U.S. already has on Canadian lumber.
The back-and-forth on tariffs is in itself impacting prices. The NAHB says they’ve gotten anecdotal reports that some builders are pricing in an extra $7,500 to $10,000 in construction costs just to be safe.
“There are reasons for cautious optimism,” said First American Deputy Chief Economist Odeta Kushi. “Builders’ ability to offer incentives and the potential for less restrictive monetary policy in the second half of 2025 could be tailwinds. New homes offer several advantages over existing homes. The price premium between new and existing homes has narrowed, making new homes more accessible.
“Additionally, in this ‘higher-for-longer’ rate environment, builders can offer mortgage rate buydowns to make monthly payments more manageable and provide upgrades on interior quality features. Builders will likely use rate buydowns as a key strategy again in 2025.”