Tariff, Housing Costs raise warning flags

-NAHB

Builder sentiment fell sharply in February over concerns on tariffs, elevated mortgage rates and high housing costs.

Builder confidence in the market for newly built single-family homes was 42 in February, down five points from January and the lowest level in five months, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.

“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,” said NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan. “Uncertainty on the tariff front helped push builders’ expectations for future sales volume down to the lowest level since December 2023. Incentive use may also be weakening as a sales strategy as elevated interest rates reduce the pool of eligible home buyers.”

“With 32% of appliances and 30% of softwood lumber coming from international trade, uncertainty over the scale and scope of tariffs has builders further concerned about costs,” said NAHB Chief Economist Robert Dietz. “Reflecting this outlook, builder responses collected prior to a pause for the proposed tariffs on goods from Canada and Mexico yielded a lower HMI reading of 38, while those collected after the announced one-month pause produced a score of 44. Addressing the elevated pace of shelter inflation requires bending the housing cost curve to enable adding more attainable housing.”

The latest HMI survey also revealed that 26% of builders cut home prices in February, down from 30% in January and the lowest share since May 2024. Meanwhile, the average price reduction was 5% in February, the same rate as the previous month. The use of sales incentives was 59% in February, down from 61% in January.

Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

All three of the major HMI indices posted losses in February. The HMI index gauging current sales conditions fell four points to 46, the component measuring sales expectations in the next six months plunged 13 points to 46, and the gauge charting traffic of prospective buyers posted a three-point decline to 29.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell three points in February to 57, the Midwest moved two points lower to 45, the West edged one-point lower to 39 and the South held steady at 46.

EPAB President's Message

Productive Meetings in Austin

Believe it or not, we are already in February! With the new month comes a fresh set of challenges for the building industry, both across Texas and right here in El Paso. As homebuilders, we continuously adapt to the evolving landscape, working to ensure that families can access quality housing while navigating the complexities of regulations, infrastructure, and market conditions.

Earlier this month, we had the opportunity to travel to Austin for Rally Day at the Capitol, a crucial event where homebuilders from across the state meet with legislators to discuss pressing industry concerns. It was a productive trip, and we were grateful for the opportunity to engage directly with our state representatives.

During our visit, we met with Rep. Mary González, Rep. Claudia Ordaz, Rep. Vince Perez, and Senator César Blanco. We discussed several key issues affecting homebuilders and homeowners alike, including impact fees and challenges with water meter installations.

Over the past few months, there have been growing concerns regarding delays in obtaining water meters from the utility provider. Some builders have faced difficulties securing service, while in other cases, new homeowners have struggled to transfer service into their name after purchasing a property. According to recent reports, water meter installation delays have affected over 150 new homes in El Paso, causing setbacks in closing deals and frustrating both builders and buyers. Additionally, impact fees on new developments have increased by nearly 30% in the last five years, further driving up housing costs in the region.

Fortunately, our discussions with state officials were productive, and they listened to our concerns with genuine interest. It is reassuring to know that our representatives are open to working with us to find solutions that will benefit not just builders, but the entire community. Advocating for fair policies and efficient processes is essential to ensuring that El Paso continues to grow and thrive.

Of course, no trip to Austin would be complete without enjoying some great food! We wrapped up our day with a well-deserved meal at Gus’s World Famous Fried Chicken, a place that never disappoints. Good food and good company made for a great way to end a successful day of advocacy and collaboration.

As we move forward, the El Paso Association of Home Builders will continue to work on these issues, ensuring that our industry remains strong and that homebuyers receive the service they deserve. Thank you to everyone who supports our mission. Together, we will keep building a better future for El Paso!

Executive Message

Austin to Vegas, EPAB at work

By Ray Adauto
Executive Vice President, EPAB

Nothing matches the visit to the Texas Capitol for Rally Day every two years. It is the trip that brings in focus the reason we are an association. I have been attending and getting to know the political landscape for our members. We are respected there; a statement not all who visit can make. We can because we arrive on the shoulders of legends and work done on our behalf by those heroes.

Our work for this 89th session is just starting, with the El Paso Association ready to help where we can. Stay tuned for updates on future issues.

NAHB opens the International Builders Show February 25. EPAB will be well represented. So will suppliers who are having to deal with the Trump tariffs, continuing price escalations, supply chains, and inflation. It is understood that everyone will be looking for deals, but the bottom line is still the most important part of this trip.

As a representative I am looking for information on what the members can expect in 2025 and 2026. I hope to have meetings with the financial folks that will show up, share issues and plans with my counterparts and come away with ideas on the future.

I also plan to help the Vegas economy a little. Afterall, at least I know these risks. I’ll let you know what we find. Be safe, sell something.

Roadblocks Raise Housing Costs

The National Association of Home Builders (NAHB) told Congress February 19 that federal permitting inefficiencies delay housing projects, raise construction costs and exacerbate the nation’s housing affordability crisis.

Testifying before the Senate Environment and Public Works Committee, NAHB Chairman Carl Harris, a custom home builder from Wichita, Kan., told lawmakers that “most land developers have been forced to step away from particular parcels of land due to the uncertainty of being able to obtain the necessary permits.”

On this issue, Harris noted that the Clean Water Act (CWA) stands out among the regulated community because it is unclear which parts of the land parcel may be considered “waters of the United States” (WOTUS) and therefore require a federal wetland permit.

“Obtaining a CWA Section 404 permit takes upwards of one year, and completing an Endangered Species Act (ESA) consultation when required can take several more,” said Harris. “When considering these implications, it’s clear why we need to make the unwieldy permitting process more straightforward for home builders.”

According to a 2021 NAHB study, regulatory costs at the federal, state and local levels account for 24% of the final price of a new single-family home built for sale. Achieving predictability and certainty in the federal permitting process will help reduce the overall cost of construction, which will help increase the nation’s housing supply.

With the EPA and Army Corps of Engineers blatantly overstepping their federal authority regarding jurisdictional waters of the U.S., NAHB is urging Congress to consider the following improvements:

If the agencies continue to refuse to provide regulatory definitions for “relatively permanent” water flow or what constitutes a “continuous surface connection,” Congress must step in and define these terms. Or conversely, lawmakers should identify features that cannot by statute be considered WOTUS.

Congress must ensure the agencies prioritize responding to requested jurisdictional determinations and processing CWA Section 404 permits in a timely manner.
Regulatory changes to the definition of WOTUS should not invalidate prior approved jurisdictional determinations.

Like the CWA, the ESA’s Section7 consultation process requires builders to first consult with the U.S. Fish and Wildlife Service or the National Oceanographic and Atmospheric Administration before they can start construction if their project may impact endangered species. This process usually results in permitting delays, project reconfiguration, and possibly the loss of buildable lots.

Regulatory changes that establish clear timeframes for the agencies to complete the Section 7 consultation process, as well as expanded use of programmatic Section 7 consultations, would help ensure ESA consultations are completed in a timely manner and eliminate some of the uncertainties and permitting delays that have plagued the Section 7 consultation process since its inception.

“Enacting common sense regulatory reforms that will make compliance more efficient and less onerous will help home builders to better safeguard the environment and expand the availability of attainable, affordable housing for all Americans,” said Harris.

Elevated Interest Rates, Housing Starts Retreat

Constrained housing affordability conditions due to ongoing, elevated interest rates led to a reduction in single-family production to start the new year.

Overall housing starts decreased 9.8% in January to a seasonally adjusted annual rate of 1.37 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

The January reading of 1.37 million starts is the number of housing units builders would begin if development kept this pace for the next 12 months. Within this overall number, single-family starts decreased 8.4% to a 993,000 seasonally adjusted annual rate; the January pace was 1.8% lower than a year ago. The multifamily sector, which includes apartment buildings and condos, decreased 13.5% to an annualized 373,000 pace.

“As mirrored in our latest builder survey, high construction costs, elevated mortgage rates and challenging housing affordability conditions are causing builders to approach the market with caution,” said Carl Harris, chairman of the National Association of Home Builders (NAHB) and a custom home builder from Wichita, Kan. “The uncertain policy environment in terms of a better regulatory climate and impending tariffs offers both upside and downside risks in the near-term.”

“The single-family home building market is facing competing concerns and opportunities for 2025,” said NAHB Chief Economist Robert Dietz. “Given persistent affordability concerns, reducing inefficient regulatory costs would offer the best policy path to improve attainable housing supply and bring down shelter inflation.”

On a regional basis compared to the previous month, combined single-family and multifamily starts are 27.6% lower in the Northeast, 10.4% lower in the Midwest, 23.3% lower in the South and 42.3% higher in the West.

Overall permits increased 0.1% to a 1.48 million unit annualized rate in January. Single-family permits were at a 996,000 annual unit rate, remaining unchanged compared to the previous month. Multifamily permits increased 0.2% to an annualized 487,000 pace.

Looking at regional permit data compared to the previous month, permits are 6.1% lower in the Northeast, 1.8% higher in the Midwest, 0.1% lower in the South and 2.3% higher in the West.

The number of single-family homes under construction in January is down 6.3% from a year ago, to 641,000 units. The number of multifamily units under construction is down 22.1% from a year ago, to 768,000 units.

There were 669,000 multifamily completions in January, up 11% from January 2024. For each apartment starting construction, there are 1.8 apartments completing the construction process.