U.S. homebuilders head into back half of 2025 with rising costs, tariff uncertainty
The sector is also grappling with a weakening consumer sentiment, prompting builders to offer incentives like mortgage rate buydowns and smaller, more affordable homes to stimulate demand. However, these measures failed to boost spring sales.
Evercore ISI's July survey revealed the weakest spring selling season since 2019, with 71% of respondents calling it "slow" and 29% "a little slow." None described conditions as solid.
Costs for homebuilders have been rising in recent years due to post-COVID inflation for materials, while U.S. President Donald Trump's tariff and immigration policies are adding further costs.
"(The tariffs) may have an additional material impact on the cost structure of homebuilding in the U.S., perhaps by another 4-10% increase (to the cost of construction) in material alone depending on geographic location and the type of material being sourced," said Stuart Siegel, CEO of real estate firm Engel & Völkers' Americas operations.
So far, U.S. homebuilding giants like DR Horton (DHI.N), opens new tab, Pultegroup (PHM.N), opens new tab and NVR (NVR.N), opens new tab - all set to report quarterly results on July 22 - have so far noted little to no impact from tariffs in their operations.
However, 50% tariffs on steel and aluminum, and similar levies on copper imports, are expected to affect homebuilders in the coming months. The United States is a significant importer of all these materials.
Single-family homebuilding starts are at their lowest in 11 months, while single-family permits fell to the lowest level since March 2023. The number of single-family units under construction but not completed is at its lowest since February 2021, according to U.S. government data published last Friday.
Mortgage rates remain elevated as Trump's import tariffs add to economic uncertainty, sustaining high long-term interest rates—the benchmark for U.S. mortgage rates. The rate on the most popular home loan, the 30-year fixed-rate mortgage, was 6.75% as of July 17, according to Freddie Mac, within the 6.62% to 7.04% range so far this year.
Higher mortgage rates have reduced existing-home sales, as homeowners are reluctant to sell and lose their existing low-interest mortgages.
"Sixty-seven percent of homeowners say they'd rather remodel than move, especially with high interest rates and limited housing inventory. In fact, homeowners now plan to stay in their homes an average of five years longer than they originally expected," said Angie Hicks, co-founder of American home services platform Angi (ANGI.O), opens new tab.
"Existing-home sales have declined for three consecutive years, and 2024's sales of 4.06 million were 34% lower than 2021's 6.12 million, and over 20% lower than the 25-year historical average near 5.20 million," analysts at Morningstar Equity Research in an industry pulse note.
In the coming months, the industry expects an uptick in sales of existing homes and a decline in new-home sales.
"New home demand is still muted. Existing home listings are rising, but the 'frozen' resale market has yet to thaw," analysts said in a BofA Securities research note.
** The S&P 500 homebuilding sub-index (.SPLRCHOME), opens new tab has fallen over 6% year to date, compared with a 1.5% fall in 2024, and about 7% increase for the benchmark S&P 500 index (.SPX), opens new tab.
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