Builder survey index
From the National Association of HomeBuilders (NAHB): “Builders continue to face elevated building material costs that are exacerbated by tariff issues, as well as other supply-side challenges that include labor and lot shortages,” said NAHB Chairman Buddy Hughes, a homebuilder and developer from Lexington, North Carolina.
At the start of the year, the builders probably didn’t expect to factor tariffs into their business plans, but here we are. With rising mortgage rates, more supply and some pressure on profit margins, it’s challenging for housing permits to grow. If mortgage rates rise from today’s level, this will be a negative for the labor market, which has already been shedding government jobs in 2025. This raises the risk of the unemployment rate going even higher than the Federal Reserve feels comfortable with.
The chart below is not very encouraging. The only positive aspect I can identify is that the six-month forward-looking data has stabilized. The recent decline in rates likely contributed to this improvement. In the last few years, mortgage rates approaching 6% have helped address this issue to some extent.
Conclusion
We need lower morgage rates. Rather than 3%, 4% or 5%, if mortgage rates can just head down toward 6% and remain there, all housing data will improve and we could see a resurgence in permits as new home sales grow. Builders have the power to bring mortgage rates down to an inspiring 4.5%-5.5% when needed to move their product, but it’s getting more expensive for them with rates this elevated.
With all the concerns the builders have, you can see why their survey is sour right now. Hopefully, lower mortgage rates can reverse this negative trend.
