U.S. housing market stalls again this spring as high rates and costs squeeze builders

Spring Slowdown: U.S. Homebuilders Struggle as Housing Starts Remain Weak

High mortgage rates, rising costs, and policy shifts weigh on home construction

Spring traditionally marks a strong season for the U.S. housing market, as builders gear up for heightened homebuying activity. But for the third year in a row, that seasonal optimism has been dashed by an increasingly difficult economic and policy environment.

New data from the U.S. government shows housing starts rose just 1.6% in April to a seasonally adjusted annual rate of 1.36 million units — a weak showing that underscores the ongoing malaise in home construction. Housing starts are now down 25% from their post-pandemic peak of 1.83 million in 2021, the highest rate in nearly two decades.

Housing market faces compounded headwinds

The slowdown in residential construction reflects a perfect storm of negative pressures. The most persistent challenges remain high mortgage rates and surging home prices, both of which have eroded affordability for buyers and strained builders’ profit margins.

Since 2022, the Federal Reserve has pursued aggressive interest rate hikes to fight inflation, which has pushed borrowing costs to levels not seen in more than a decade. At the same time, limited housing inventory has kept upward pressure on home prices, with no major relief in sight.

Adding to the burden are recent policy moves. Tariffs introduced under former President Donald Trump have driven up the cost of construction materials, while his administration’s renewed immigration crackdown is expected to shrink the labor pool available for building trades — an industry already suffering from skilled worker shortages.

Builders pull back as demand softens

The National Association of Home Builders (NAHB) sentiment index has fallen to its lowest level in 18 months, reflecting the growing unease among builders. Many developers have begun cutting prices to attract hesitant buyers, but with affordability still strained, sales momentum has failed to recover.

“The outlook for housing has gotten worse since the year began,” said Ali Jaffery, an economist at CIBC Economics. “Mortgage rates remain prohibitive, and consumer sentiment has taken a turn for the worse.”

Permits for future construction — a key indicator of builder confidence — fell nearly 5% in April to an annual rate of 1.41 million. That figure is now 26% lower than its early 2022 peak, showing that builders are delaying or shelving new projects in response to current conditions.

A worsening housing shortage

Despite the downturn in construction activity, demand for homes remains high. Many Americans are ready to buy but are locked out of the market due to high prices and financing costs. This imbalance is contributing to a growing national housing shortage.

“With supply crimped and prices still grinding higher, the housing market is becoming even more inaccessible to first-time buyers,” Jaffery noted.

The lack of affordable housing is also driving inequality in the real estate market, as existing homeowners build equity while younger and lower-income buyers remain on the sidelines.

Wall Street shrugs off grim data

Interestingly, Wall Street appeared largely unmoved by the negative housing data. The SPDR S&P Homebuilders ETF (XHB) posted a modest gain, rising 0.65%, while major builders Lennar (+0.65%), PulteGroup (+0.44%), and Toll Brothers (-0.14%) saw mixed trading. Broader indexes such as the S&P 500 and Dow Jones Industrial Average also inched higher.

Analysts suggest that investors may be betting on a medium-term recovery or are encouraged by the resilience of builder earnings despite the weak construction metrics. Many homebuilders have shifted focus to high-margin projects and institutional sales, helping to stabilize financial performance.

Outlook: muted growth, persistent uncertainty

Looking ahead, the housing market is unlikely to rebound significantly unless mortgage rates drop or significant supply relief materializes. Yet with inflation still a concern and the Fed cautious on policy easing, borrowing costs are expected to remain elevated through the year.

Furthermore, continued volatility in construction input prices and policy shifts around tariffs and immigration could weigh heavily on the sector. For now, both builders and buyers face a constrained landscape with limited upside.

Stay tuned to The Horizons Times for ongoing insights into the U.S. housing market, economic policy shifts, and real estate trends shaping 2025.