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Builders are beginning to pump the brakes on new construction as a mix of affordability pressures and threatened tariffs add fresh uncertainty to the market.
New residential construction improved modestly year over year in March, but the rebound wasn’t nearly as strong as expected, according to new data released Thursday by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).
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In March, privately owned housing starts fell 11.4 percent from February, dropping to a seasonally adjusted annual rate of 1,324,000. Although that figure is 1.9 percent higher than March 2024, it’s not enough to signal a strong recovery. Single-family starts bore the brunt of the pullback, falling 14.2 percent to 940,000 units — the lowest level in six months. Meanwhile, construction of multifamily buildings came in at 371,000.
Tariffs recently implemented or threatened by the Trump administration are already driving up the cost of building materials. According to the National Association of Home Builders (NAHB), 60 percent of builders say their suppliers have increased prices or announced price increases for building material prices due to tariffs.
Builders surveyed by the NAHB say their suppliers have increased prices by 6.3 percent in response to announced, enacted, or expected tariffs, driving up the cost of building a new home by $10,900 on average.
Robert Dietz | National Association of Home Builders
“Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions,” NAHB Chief Economist Robert Dietz said in a statement.
Although builder sentiment inched up slightly in April, from 39 to 40, NAHB Chairman Buddy Hughes said that could reflect a dip in mortgage rates last month that may have helped push some buyers off the fence.
“At the same time, builders have expressed growing uncertainty over market conditions as tariffs have increased price volatility for building materials at a time when the industry continues to grapple with labor shortages and a lack of buildable lots,” Hughes said.
Odeta Kushi | First American Deputy Chief Economist
Builders pulled back more than expected in March amid rising tariff uncertainty, as housing starts slumped well below consensus expectations, First American Deputy Chief Economist Odeta Kushi said in a LinkedIn post.
“Builders face persistent supply-side and affordability challenges, from higher material costs to a shortage of skilled labor,” Kushi added. “Residential building material costs are still more than 40 percent higher than pre-pandemic levels, making construction more expensive.”
The Trump administration imposed 25 percent tariffs on steel and aluminum in March, a 25 percent tariff on autos on April 3, and a 10 percent blanket tariff on imports from most U.S. trading partners on April 5.
Many goods from Mexico and Canada are exempt from the 10 percent baseline tariff under the the United States-Mexico-Canada Agreement (USMCA), including lumber — a decision that the NAHB has called a “major win” for homebuilders. A Biden-era 14.5 percent tariff on Canadian lumber remains in effect.
While country-specific “reciprocal” tariffs of up to 50 percent against dozens of countries are on hold until July 9, imports from China are now subject to 145 percent duties, with additional tariffs of up to 100 percent on specific goods.
New Residential Construction| U.S. Census Bureau
Even so, some aspects of the housing market showed modest resilience. Housing completions dipped just 2.1 percent from February, coming in at a seasonally adjusted annual rate of 1,549,000. Single-family completions inched up by 0.9 percent while more than 503,000 units in multifamily buildings were completed, helping to ease rental supply constraints in some markets.
Looking ahead, the outlook for new construction remains uncertain.
Building permits painted a mixed picture. Overall, permits for privately owned housing units rose 1.6 percent to 1,482,000 in March. However, single-family permits declined 2.0 percent to 978,000, hitting their lowest level in five months, while multifamily permits landed at 445,000.
“The slower pace of single-family permits suggests a reduced rate of groundbreaking in the upcoming months, due to higher inventory levels in key markets and ongoing challenges with costs and affordability,” Kushi noted.
Builder outlooks for the months ahead also showed signs of softening. Optimism about single-family sales over the next six months dropped four points to 43 — the lowest reading since November 2023. While current sales ticked up from 43 to 45, and prospective buyer traffic rose slightly from 24 to 25, both measures remain in negative territory, according to Kushi.
“The gains in measures capturing current conditions are likely due to recent declines in mortgage rates, which could help to coax some buyers off the sidelines,” Kushi said. “However, the worsening outlook for future sales conditions reflects growing builder concerns about costs and affordability.”
