- Tariff and immigration policy anxiety is settling in for homebuilders, and it’s starting to reveal itself in the data. Building permits, housing starts, and housing completions all fell in February compared to a year ago. Despite some monthly rebounds from a particularly weak January, builders are losing confidence—and buyers might have to pay the price.
Homebuilders are anxious about tariffs, and it’s starting to show in construction data. Building permits, housing starts, and housing completions all fell in February compared to a year ago, according to government data released Tuesday. Any drop-off in housing development is distressing because the country is short almost four million homes.
“Builders are exercising caution due to the economic uncertainty stemming from the Trump administration’s advancement of a trade war and mass deportations,” Joel Berner, Realtor.com senior economist, said in a statement. “With tariffs being levied against construction imports like Canadian lumber and the construction labor force being shrunk by immigration policy, builders are pulling back on delivering new homes to the market.”
Economists warned before President Donald Trump was elected his tariff and immigration policies could be inflationary, and it appears as if builders are catching on; they’re essentially taking a page out of the Federal Reserve’s approach-with-caution book. The on-again, off-again tariffs are prompting uncertainty, but the threats of reciprocal tariffs as well as those on lumber, aluminum, and steel are enough to push builders to pull back.
For a while, the new construction market was a bright spot in an otherwise dreary housing world where existing home sales fell to their lowest level in almost three decades. Builders could do what typical sellers couldn’t: They could offer mortgage rate buydowns and build smaller homes. But “growing concerns over tariffs are starting to have an impact on new starts and permitting activity,” Bright MLS Chief Economist Lisa Sturtevant said in a statement, echoing her peers as she pointed to tariffs and overall economic uncertainty weighing on builders.
According to U.S. Census Bureau data released Tuesday, total building permits dropped 1.2% from January and 6.8% from a year earlier; total housing starts rose 11.2% from January but fell 2.9% from a year earlier; and total housing completions declined 4% from January and 6.2% from a year ago. Total starts were the only area to rebound on a monthly basis. Even so, multifamily development bore the brunt of the blow, Berner explained, which could mean higher rents ahead because fewer apartments mean increased demand and that tends to come with higher prices. Single-family construction isn’t out of the woods despite some monthly increases in starts and completions after an especially weak January.
Even the National Association of Homebuilders appeared to write off the month-to-month rebound in starts as a product of limited existing inventory because homeowners are holding onto their homes rather than selling for fear of losing their low mortgage rate. The group said builders are grappling with elevated construction costs stemming from tariff issues and persistent labor shortages.
“Builder confidence is weighed down by the double whammy of cost challenges and policy uncertainty,” Odeta Kushi, chief economist of First American Financial Corporation, said in a statement. “Builders face persistent supply-side and affordability challenges, from higher material costs to a shortage of skilled labor. Material costs are still about 40% higher than pre-pandemic levels, making construction more expensive.”
Tariffs could make everything more costly. After all, builders estimate levies could mean an extra $9,000 to the price tag on every home.
“If tariffs persist, builders will have no choice but to pass on the costs to consumers, who are already struggling with housing affordability,” Kushi said. (Bank of America also recently found building material manufacturers’ are hiking prices on the back of Trump’s tariffs).
Since February 2020, home prices increased 45% and rents 33%, according to Zillow: a product of the pandemic housing boom. Mortgage rates are nowhere near their pandemic rock bottom either. The 30-year fixed mortgage rate is 6.95%, according to the latest weekly average. Many people can’t afford a tariff-related increase to either home prices or rents at this point.
The underlying trend is homebuilding is slowing, Matthew Walsh, Moody’s housing economist, said in a statement.
“Homebuilder sentiment is souring amid mounting uncertainty around trade and immigration policy, is clouding the outlook for new construction,” he said.
