Welcome to the latest edition of The Full Measure, where we analyze the latest developments in the housing market and their impact on real estate appraisers. This month, we’re witnessing a slight dip in mortgage rates, declining builder confidence, and slowing home sales as affordability constraints persist. Economic uncertainty and shifting policy decisions continue to shape the market, making it more critical than ever for appraisers to remain adaptable.
From my perspective, this is a market in transition. While some might see the slowing of new construction and declining sales as a sign of a downturn, I believe we are instead moving into a period of recalibration. Builders, buyers, and investors are all reassessing their strategies in response to long-term economic realities rather than short-term fluctuations.
Mortgage Rates: A Temporary Decline or a Market Shift?
February saw a modest decline in mortgage rates, with the average 30-year fixed-rate mortgage falling to 6.84%, down from 7.04% in mid-January. While this drop is encouraging, it remains well above the pre-pandemic levels that fueled the housing boom.
I expect mortgage rates to remain relatively high throughout the first half of the year, as the Federal Reserve has signaled that interest rate cuts may not come until the second half of 2025. This means that affordability challenges will persist, keeping many buyers on the sidelines. From an appraisal standpoint, this ongoing hesitation in buyer activity suggests that home prices could stagnate in certain markets, particularly in mid-tier price ranges.
Builder Confidence Declines as Costs and Tariffs Weigh Heavy
Builder sentiment took a hit this month, dropping to its lowest level in five months, according to the NAHB/Wells Fargo Housing Market Index, which fell five points to 42. The biggest concerns for builders remain rising material costs, elevated mortgage rates, and uncertainty surrounding tariffs.
The impact of tariffs on imported construction materials is particularly concerning. With 30% of softwood lumber and 32% of appliances coming from international trade, builders are struggling to maintain profitability amid fluctuating costs (NAHB). While there has been a temporary pause on proposed tariffs on Canadian and Mexican goods, it remains to be seen whether these measures will provide long-term relief.
I believe that builder confidence will remain low until we see more policy clarity, particularly regarding trade and taxation. In the meantime, appraisers should anticipate fewer new housing starts, which could tighten supply later in the year.
Housing Starts Slow, While Completions Accelerate
January data reflected a 9.8% decline in housing starts, marking a slowdown in new home construction. This decline was broad-based, with single-family starts dropping 8.4% and multifamily starts plummeting 13.5% (NAHB).
Despite the slowdown in new projects, housing completions surged by 7.6% as builders focused on wrapping up existing developments rather than launching new ones. This means that in the short term, the market will see an increase in available inventory. However, if new housing starts continue to lag, I expect supply constraints to emerge in late 2025, potentially pushing home prices higher in some regions.
From an appraisal perspective, this data reinforces the importance of tracking regional trends. Areas with strong completion activity may experience price stabilization, while those with fewer housing starts could face upward price pressures.
Home Sales Continue to Decline, With Mid-Tier Homes Seeing the Biggest Impact
January data confirmed what many in the industry had suspected—home sales remain sluggish. New-home sales fell 10.5% from December, marking a three-month low. Existing-home sales also declined by 4.9% month-over-month, despite posting a slight 2% increase year-over-year.
One of the most striking trends is the shift in demand across different price points. Homes priced between $300,000 and $399,999 saw a decline in sales, while higher-end homes ($500,000 and above) remained in demand. This suggests that affordability constraints are most pronounced in the mid-tier market, where buyers are more sensitive to rising mortgage rates. I believe this trend will continue throughout the year unless we see significant rate cuts or wage growth that improves affordability. Appraisers should adjust their expectations accordingly, recognizing that mid-tier homes may struggle to appreciate, while luxury properties could continue to hold their value.
Policy and Economic Factors Continue to Create Uncertainty
Beyond the housing market itself, broader economic and policy factors are shaping appraiser decision-making. Inflation remains persistent, with the Consumer Price Index rising 3.0% in January, led by a 4.4% increase in shelter costs.
Meanwhile, the Federal Reserve has maintained a cautious stance, with policymakers indicating that interest rate cuts are unlikely before late 2025. This means that mortgage rates will likely stay elevated in the near term, maintaining affordability pressures on buyers.
Another wildcard is housing policy and trade regulations. Discussions about tariffs on construction materials are creating uncertainty for builders, while potential tax reforms could impact mortgage interest deductions and investment incentives.
As an appraiser, I believe the key takeaway is to remain flexible and well-informed. Policy shifts can rapidly change market conditions, and those who stay ahead of these trends will be better equipped to provide accurate valuations.
Regional Market Disparities: Not All Markets Are Moving the Same Way
Market conditions continue to vary significantly by region. The Northeast saw the steepest decline in new-home sales, down 60% year-over-year, highlighting affordability challenges. Meanwhile, the South, which remains the largest market for new construction, posted a 14.8% drop in new-home sales from December.
In contrast, the Midwest led the country in new construction permitting, increasing 1.8% month-over-month. The West continues to outperform, with new-home sales rising 7.1% year-over-year, showing resilience despite broader market slowdowns.
As I see it, appraisers cannot rely solely on national trends when assessing local markets. A one-size-fits-all approach will not work, as regional conditions are diverging more than ever.
The Full Measure: Key Takeaways for February
As we close out February, mortgage rates have dipped slightly but remain high enough to keep affordability a major issue. Builder confidence continues to slide, and new housing starts are slowing, which could lead to supply constraints later this year. Home sales remain sluggish, particularly in the mid-tier market, while luxury homes appear to be holding steady. Meanwhile, inflation, Federal Reserve policies, and trade regulations are creating an uncertain environment for the housing industry.
I expect that the market will remain in this holding pattern until there is more clarity on interest rates and economic policy. In the meantime, appraisers should remain vigilant, adaptive, and regionally focused to provide the most accurate and defensible valuations.
That’s it for this month’s edition of The Full Measure. We’ll be back next month with another in-depth analysis of the latest market trends. Until then, keep measuring the market with precision.
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