Homebuilder sentiment has been low since mid-2022. Buyer traffic is dismal. 
The NAHB/Wells Fargo Housing Market Index (HMI) has been stuck in a wide range since mid-2022.
Key HMI index Components for February
- Builder confidence in the market for newly built single-family homes was 42 in February, down five points from January.
- Current sales conditions fell four points to 46.
- Sales expectations in the next six months plunged 13 points to 46.
- Traffic of prospective buyers posted a three-point decline to 29.
Builder Incentives
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.
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.
NAHB Wells Fargo Housing Index vs Traffic
It’s no secret what the problems are.
Mortgage rates are high and so are home prices. Once mortgage rates hit 5 percent traffic plunged.
Builders offered incentives and price reductions but we are at the end of things that can be done. And fewer builders are offering incentives this month.
What About Labor Costs?
It will be interesting to see the impact on construction costs and the price of skilled labor if there are mass deportations.
Deporting skilled labor will be a huge mistake. How many are afraid to show up for work right now?
Neither businesses nor people cheering “deport them all” will like the result if Trump acts foolishly, not only for construction costs but also agriculture, hotel staff, and restaurants.
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February 17, 2025: The CPI Is Deeply Flawed and the Fed Feeds those Flaws
The Fed makes horrendous policy decisions because it does not understand inflation.
On January 23, I noted Trump “Will Demand Interest Rates Drop Immediately”
Trump repeated that call after the disastrous CPI report. Instead, he should have blamed the Fed for cutting rates before the election.
Deporting skilled labor would be a serious stagflationary mistake.
Prices need to come down. Mortgage rates are “normal”. Homebuilders are one thing, where they have a cost of production, and sell over that to make a profit. For most of the time since the start of the Pandemic, homebuilders made a fortune. At first, they had overwhelming demand, then, they fought inflation on inputs, but, were able to raise prices to cover that due to low rates. Revenues pretty much doubled in the last 5 years and profits did the same. Now those margins will contract.
The real issue is resale homes, and, until now, sellers didn’t want to lower their prices, all wanting to get 5 percent more than their neighbor down the street got six months ago. But, all having enjoyed a 50 percent increase in their homes value over the course of 3 years (2020 through mid to late 2022). So, homeowners have a huge, unexpected gain in their homes, but, the time has finally come (and it’s really already been this way for over a year) that the buyer is saying, “No, I won’t go that high”.
Watch the next year and I bet you see home prices flatten, if not drop in some markets.
“NAHB Housing Sentiment Flounders, the Market Needs Lower Mortgage Rates”
I could give a rat’s ass what NAHB thinks, and NO interest rates don’t need to fall. They need to be stuck in the 7% range until housing drops at least 20% nationally. You’re either going to get prices down with high mortgage rates or via a recession. I’ll take the former over the later any day of the week.
Rates are NOT the problem. It’s going on 15 years of rising prices that’s the issue. If rates fall, prices are going to start climbing again which is NOT what’s needed. In addition to lower home prices, we need lower property taxes & homeowner’s insurance.
For every 1% change in the 30 year mortgage rate there should be a 10% change in price based on mortgage affordability standards, so a 1% increase equates to a 10% drop in price.
Assuming a 7% rate, all time high market pricing was in early 2022 when the rate was around 3%, and median household income increased by about 25% from early 2022 to present day, then housing prices should be 75% of the early 2022 market price levels.
40% reduction deduction due to mortgage rate increase, or 60% of market all time high price
1.25 times increase from household income gains
60% x 1.25 = 75%
Housing prices will continue to remain high, regardless of interest rates due to supplying demand. People that have a 3% interest rate aren’t selling. It costs a lot of money to build a new home these days..
And those new homes have a ton profit in them for builders that a recession needs to wipe away.
Conforming loan levels of Fanny and Freddie are what needs to lowered, from about $760,000 currently. Let Jaimie Dimon take more risk, since he’s putting in longer hours at the office anyway.
Even with the illegal immigration construction workers, house prices are unaffordable.
So what will be the difference if you get rid of all of them?
Saw an interesting article on Wolfstreet a short while back.
https://wolfstreet.com/2025/01/28/glut-of-new-houses-for-sale-in-the-south-at-all-time-highs-bigger-even-than-during-the-housing-bust-the-west-is-getting-close/
What shocked me is that all the new construction is in the south and west. The northeast only had 33000 new homes sold for the whole year. The midwest only 79000. Those are rounding errors. If there is going to be a big bust in new homes it’s going to be in the south and west regions.
Housing is usually a good leading indicator for recessions, it will be interesting to watch sales and permit numbers going forward.
As part of housing, the actual construction industry employment is a great subcategory to watch.
Not a lot of skill in swinging a hammer or using a nail gun. Two weeks training, tops.
I hope ALL illegals are too afraid to show up to work or leave their home.
I hope they’re hard at work building Pritzker’s and Bernie’s next mansions.
Deporting skilled labor would be a serious stagflationary mistake.
—
All I see is very very unskilled labor being imported. They aren’t sending their best.
Why stop at Ukraine ? Putin and Trump can split up Europe.
Putin gets Europe, and we get Canada, Mexico, Central America, and red white and blue land.
A great deal for alll!
Xi might feel left out…
He gets Taiwan and Southeast Asia.
And what about the $US, $US debt and reserve currency status? You are heading to dust bowl with that plan. Granted, when youse blow we go too.
Every middle school kid who has played Risk knows that.
French Polynesia would be nice!
I was kidding. This conference in Saudi Arabia between Putin and Trump is like Neumann and Kramer playing Risk on Seinfeld. A game of global domination played by two guys who can barely manage their own lives.
That is clearly not the plan. The plan is to re-friend Russia, weaken Iran and break that axis with China. I will not be surprised to see another G8 summit with Russia present. China is the threat not Russia, Europe is needed and will always be party to this goal.
The local home depot is devoid of the usual dozens and dozens of people waiting to be picked up for day labor. It’s also winter so I’m not sure which is causing the vacancy, the cold or ICE (pun intended).
A friend that works for a home builder said they are worried about finishing current projects and have seen some drop off in available labor.
Outstanding. Keep it coming Trump. At some point, we might actually see commercials on TV inviting Americans to build houses.
Asset inflation; real estate, stocks, art, preceed CPI inflation. The so called hedges only work properly if purchased and owned before the CPI inflation. It’s inflation now and more to come. Bernanke built the dynamite factory, covid and Biden struck the match.
Mortgage rates are too low. Theyve been artificially suppressed by 2.2 TRILLION in money printing. An outrageous socialist price fixing of rates that enabled a speculative orgy in real estate leading to house values that are suffocating the country. Are people bothered by high prices and property taxes and high or cancelled home insurance and low home sales or low home and land listings? Well, 98% of voters in the most recent election ironically supported the current housing debacle by again voting for the Uniparty Republicans and Democrats. These Republicans and Democrats overspend so recklessly that if the debt were to be sold in a *free market*, rates would have to go a lot higher to attract all the dollars needed to pay for it. So they crank up the money printer to buy trillions in bonds including mortgage bonds to push down rates, as seen here:
https://fred.stlouisfed.org/series/WSHOMCB
So its Congress, who the voters obliviously voted for, that is the cause of the housing mess. I’m surprised you say theyre too high Mish, being a free market supporter, or maybe youre just saying what the sentiment is for people who think they can gain from asset bubbles.
The GSEs and FHFA are the real culprits when it comes to mortgage rates and housing affordability. The best thing Trump could do for affordale housing is to get rid of the GSEs (Fannie Mae, etc.)
After two and a half years traffic made a rd trip between Mar 2020 low and Nov 2022 low. Traffic is in accumulation for two and a half years. If Hakeem the regime change will shut the gov down JP might cut rates an stay the course for a while. If the Fed will cut rates buyer will move in on the bargains and traffic will popup.
No, real estate needs lower prices. Low interest rates got us into this mess. I’m afraid only a collapse can get us out of this.
Real estate needs higher wages and moderate inflation that will cut prices in real terms.
This is certainly the message being put out by the industry which implies that mortgage rates are high which is inaccurate when compared to prior decades.
The exception to this was when the Fed cranked up the printing press and started buying long-term bonds which drove mortgage rates to extremely low levels compared to historical norms.
And It should be noted that the bond purchases caused or enabled the explosion in money supply and financially repressive rates which drove investors to bid up housing into the stratosphere.
Thank-you, you nailed it. We need resets (recessions) to deleverage but since Bernanke (Nobel Prize winner!?) we appear better apt at kicking the can down the road. It is still a grand experiment not finalized. Let real estate sweat a bit but keep finger on pulse.
As with Ike ending the Korean War plus his three million deported illegal aliens, all the Don has to do is deport thirty million I.A.s, quit NATO leaving it defunct along with the evicted UN, and reinstate an updated SEATO with Russia and South America included while calling it a day with a mothballed fleet of Love Boats and a DOD yearly budget of say 150 billion but renamed the War Department. Oh, and remove Teddy and Abraham and his civil war crimes from Rushmore and replace with the Don and Tulsi Gabbard for ending the Central Ignorance Agency or CIA and currently in CYA mode. . . . . .
I like the cut of your jib.
Funny that you refer to the SEATO. There used to be such an organization. South East Asian Treaty Organization. Was disbanded sometime during the late 1970s.
rates are still way to low
The housing market needs lower prices rather than lower interest rates. Current rates are near historical average. Remove the incentives that use housing as an easy investment vehicle and prices will gravitate lower. Lowering interest rates would incentivize additional investment and keep prices elevated, which is counterproductive.
I agree but do that and watch the markets drop about 95%.
Even as a homeowner, I would embrace drastically lower prices. 95% is grossly over estimated but I agree prices would drop substantially.
I meant that the financial markets would drop 95% as housing is such an integral part of the economy. Housing itself would fall some unknown amount based on the money floating around to buy regardless of finance considerations.
Remember the auctions of 2009/2010? Plenty of people had all the cash they needed to buy up properties at large discounts with cash.
I would think ultimately that removing the idea of a house as an investment vehicle would bring a significant decline that might ultimately make a house more affordable for many.
You should tell that to Trump and the Republican Congress. I thought he wanted to reinstated the SALT tax deductions for ‘everyone’
He just said that as a negotiating tactic.
When builders are handing out 6.5% buy downs (~30K+) on $450K new homes and still have close to 30% gross margin, then you know something isn’t right.
Okay, I change my mind from my previous post. Higher mortgage rates for longer isn’t going to cut it. We need a recession.
There won’t be mass deportations. ICE through everything they had at it in January to make a big splash, and only deported 14,000. It will almost certainly be a smaller number in February as they hit the low-hanging fruit first. At 168,000 max deportations per year, they won’t even keep up with births from the illegals.
Give it some time. Estimate for the year is 275K. It will go up with more experience, better protocols, tech.
https://www.livedeportationtracker.com/
NAHB: We need negative rates so everybody rushes to buy a new house.
It’s for the children.
no more illegals == no more need for new housing
The assumption that illegals represent a skilled labor force is erroneous.
They represent unskilled and unlicensed labor so they depress wages for legal skilled Labor. Legal skilled Labor who must be in compliance with consumer protection local governmental requirements. Which costs much overhead cost. Plus pay in for Social Security, Income Taxes, Workers Compensation. Accountants, Office overhead, Equipment and Loans on that Equipment, Maintenance.
As consequence of depressed wages no one with an ounce of Brains will learn a Trade as there is not future in breaking ones ass working. Then having to live renting a single family house with 10 non related people pooling resources to make Rent.
This is the labor model Fed works with, depress living standards of working people so as to contain inflation.
Inflation caused by growing government via deficit spending, coupled with offshoring of industry so as depressing domestic earning power. Suppressing demand except by consumer debt increase.
These were the economic models that US voters just threw out the window.
Yeh but keep on pumping Illegal Labor is cheap so that is all important.
Seems to me not so very long ago there was a series of articles backed up by someones Legal opinion that Trumpster was breaking laws. That was deemed baaaaaaad.
However illegal Labor breaking Laws and circumventing compliance is now goooooood because they are cheaaaaaaap.
What’s good for the goose is good for the gander
I forgot that when people are deported, their unskilled positions are suddenly reclassified as skilled labor, or the jobs are permanently deleted. Thanks for the reminder 😉
Drove thru some commercial areas that i used to frequent.
Place that sharpened my saw blades 45 years, for rent sign up
Mason supply where stone was bought, under new management, owner retired and just rents out yard.
Roofing supply where founders walked around with pencil behind ears, bought out, new sign up by interstate corp.
Truck parts mom and pop, bought out by interstate Corp.
Heavy equipment supplier. Bankrupt.
Lumber yards, bought up by regional, gone all in on high end smooze.
Plumber, retired.
Electrician, Retired.
Yep keep them illegals employed cause every little ting gonna be alright.
Who needs anyone that knows what they are doing anyway.
Maybe you live in an area no one wants to live in anymore? So less need for these types of businesses?
Do you live in a rural Republican-voting county?
Actually one of highest Housing costs in US.
Under $150,000 income puts you into a 2 bedroom rental apartment.
1/4 acre land buildable costs $400,000
800,000 to 1,000,000 does not last long on market resales.
Doctors getting priced out.
By the way High prices still does not make building profitable.
Just makes procuring materials and competent Labor harder to find.
No such animal as new builds under 1,000,000
You do realize that everyone you did business with 45 years ago is now retired or dead. It’s not surprising those places disappeared. The days of sons following fathers into their businesses is long gone because either they aren’t interested in that work OR we only have 0-2 kids now instead of 5-6 so higher odds there are no sons to take over.
I was witness to destruction of Trades by the effing Morons running monetary policy.
Thank you the report. No doubt. Did their slide start 5 years ago with the onset of COVID Theater?
No this has been ongoing for decades. Fed creates instability as they are constantly shifting goals of monetary policy.
People in Housing industry end up getting whipsawed in production.
To learn a Trade takes 7-8 years to go from being new guy on the job to being able as Journeyman sent out in field as lead. In a time span such as that Fed will change monetary policy direction several times.
When a person who chooses to make a living doing Building finds employment, then gets laid off, then gets rehired, gets laid off again their income stream gets slammed over and over. Becomes impossible to pay bills in a steady manner.
Houses are constructed with Hundred year life cycle. Most can survive much longer. True that about every 40 years a House will need substantial remodeling but core building is still strong.
Throw illegal workers into mix and what appeared as a solid way to make a living ends up being something to escape from.
The Fed thinks it is game theory but real people are directly impacted by schizophrenic policy decisions. No question about it, Fed has no idea what they are doing. Very destructive results in Housing market impacting whole Nation.
The two horse race where the jockey jumped from horseback to horseback has been upended by a third horse not playing by the old rules.
I know why I got out of Housing, it has deteriorated since then.
So what is the crying about now, oh its just unfair and too expensive.
Wah wah wah.
We banged out a lot of affordable housing but that was not good enough. Fed decided it needed to play God and use Housing as a stimulus then when prices rocketed up those in the industry got their heads handed to them as Fed decided to crash housing market. Then after that blew up, oh we the majesty Fed need to stimulate, oh wait there is no one left to build so we gotsta stimulate quick were are the illegals to knock out what remained of skilled trades.
Wah wah wah.
Hows that affordable housing market doing? Not so good I reckon.
“affordable” is always in the eye of the beholder. 2/3 of American households own their own home, and a lot of renters choose to be renters. So things can’t be that bad?
Who are you hanging out with that is crying so much?
Not sure where you live but in Florida people in the trades make serious bank. You can easily charge 75/hr and be busy non-stop in a 1 person business since any actual trades company (AC/Plumbing/Electric etc) charges north of 100/hr for their time (yearly AC service is 200 for roughly 1 hr visit).
If you want a career that 100% won’t be offshored ever and can earn you 150-200K a year you should get into the trades and work for yourself.
No, 150-Year-Olds Aren’t Collecting Social Security BenefitsElon Musk claims to have found rampant fraud in the Social Security Administration. There’s a much simpler explanation. https://www.wired.com/story/elon-musk-doge-social-security-150-year-old-benefits/
Until an audit is done there is no way to know what is going on. What we do know is the SS commissioner resigned immediately. When people resign immediately from high profile jobs it’s rarely an indicator of their exceptional performance.
Why bother with an audit when Musk has already defined this as fraud? He must be right, right? No conservative would presume guilt before innocence. RIGHT?
And Wired has already assured everyone that there’s no fraud whatsoever. How’s about we look into it in greater detail?
Plenty have resigned in disgust over the brochacho approach Musk and his right hand man Trump are employing. But you’re free to presume their guilt.
Most of the cases will turn out to be data entry errors. But there are more than a few cases where granny’s body was put in a freezer or quietly buried to keep those checks coming.
A simple solution is to send someone out to check on anyone 110 or older.
Try anyone 90 and older (maybe even as low as 85). It should be really easy to verify these things (for example many older people still drive and once past like 80 they need to do a yearly test so that’s an easy verification for those with drivers licenses)
Nancy & Mitch Welcome Wagon visit.
Perhaps ‘someone’ (not Norman Bates) is ‘borrowing’ their social security numbers.
Another story below. As I posted the other day, I was confident that the bureaucracy would have a collection of excuses as to what was going on. Voila!
That’s not even the issue. The fact that the year is 2025 and this exists at all is a total disgrace. Entry level coders could correct this in a day. But what can one with nefarious means do with million of VALID SS numbers, what benefits could they apply for? Can they register to vote? More money and things to be gained from these other misuses of SS numbers.
DOGE has identified a whole lot of issues that would never have existed if the nation respected Article I, Section 9 of the Constitution:
“… a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”
The full details of every Federal payout should be published within a week.
Date, amount, recipients’ name, age and Congressional district, the Federal department and relevant Appropriations language for the spend, and complete details about the purpose of the spending. “$10,000 for hammer” or $500,000 for a toilet seat”, or “$20M for virus research in Wuhan” are things that shouldn’t require Congress to hunt around, they should be routinely auditable by every taxpayer.
Maybe while DOGE is at it, it can finally find and report on Trump’s tax returns he would not turn over during his first Presidency run. You know, because they were too ‘complicated’.
Maybe we’ll see there why tax receipts are so low?
The Russian Hooker Piss Tapes, too!
You cant sell what has already been bought up by the hedge funds and private equity, who know stocks, bonds and other investments are at all-time highs already. And there is nothing better to avoid taxes than buying real estate — everythig is deductible. Every house worth buying has already been bought. I wouldnt worry about mortgage rates. They will fall from 7 to 4% once Trump gets his way and browbeats the Fed to drop rates … inflation be damned. And I dont believe the Fed cant drop long term rates … just look at Japan. They did it.
Japan’s debt to gdp ratio is 263%. God forbid we follow their lead. Plus they’re in demographic implosion mode. Their debt will eventually be cancelled and people and institutions that held it as an asset will be wiped out.
Meanwhile, last I checked, they have lots of people running to work and running to the trains, and half the Olympians are Japanese … if they are a failed society, we should be so lucky.
A gigantic, distended belly is the true indicator of masculinity, not riding on trains with soy boys.
I’m a home owner as I expect most are on here.
What exactly is deductible beyond mortgage interest? Even that’s only deductible for primary residence (ie not rental homes). For rental units, some repairs etc are deductible but not that many.
There is a TON of expenses related to homes (insurance, taxes, maintenance including stuff like yards, HOA fees etc). You don’t have those expenses when owning stocks or gold or bitcoin etc.
Most of the ‘value’ in owning the home from an investment purpose is the idea that the property value will rise. But how much more can things rise from here? Hedge funds aren’t stupid.
Tim, everyone in America now owns at least three homes (this is America after all), and since you can only really live in one, the rest are rent-out-able and therefore deductible (usually the deductions exceed the rent). Also remember the IRS employees are likely furious with Trump by now and so things are VERY deductible. I mentioned buying real estate above to highlight the investment angle, like with stocks and bonds. RE is now an investment. And that explains why there is such a shortage — wouldnt be a shortage if homes were homes, not investments.
See IRS Schedule E for Mom & Pop landlords. Also note the passive/active rules.
See Schedule C for Corporate landlords. It’s astounding.
the market needs lower home prices and lower mortgage rates.
Starter homes need to become a “thing” again, simple 2 or 3 bedroom homes, on small lots or duplex homes sharing a common wall and property.
Its not rocket science and if we need to have government programs to induce builders to build such homes, it would be a much better investment than Sesame Street in Iraq.
I bought my home with a “low interest” 1st home buyer loan of only 9.2% back in the 1980’s. paid it off in 15 years.
“Better than Sesame Steet in Iraq” could justify just about anything. Handouts/bribes to builders are likely to cause myriad market disruptions.
Come on, Sammy the Suicide Bomber is my favorite muppet!
myriad market disruptions are the norm, and hordes of homeless and overburdened indebted people trying to live in overpriced cities and suburbs are not a pillar of economic strength and stability.
People who work in a community, should be able to live in it. Henry Ford knew this and Firestone as well, he built blocks of affordable houses for his workers.
It can be a private/public arrangement with open books, there is no need for secret bribes and kickbacks, unless they build in Chicago….
The “Neutral” Rate and Implications for 30-year Mortgage Rates https://calculatedrisk.substack.com/p/the-neutral-rate-and-implications
Yes. Trump will not be able to browbeat the Fed into cutting rates if the inflation data doesn’t warrant it. Powell is 72 and wealthy. The prospect of not being reappointed may not be much of a threat. What the housing market “needs” and what it will get are not necessarily aligned.