Builder confidence drops in the U.S. housing market to its lowest level since December 2022, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). The six-point decline in May lowered the index to 34, down from 40 the previous month. This marks a sharp setback as homebuilders navigate persistently high interest rates and continued uncertainty surrounding tariffs.

Builder Confidence Drops as Incentives Expand

The latest HMI survey also revealed a rising number of builders are reducing prices to attract buyers. In May, 34% of builders reported offering price reductions—up from 29% in April. Meanwhile, sales incentives remained widespread, with 61% of builders using offers such as mortgage-rate buydowns, upgrades, and closing cost coverage to help move inventory. That figure matched the rate seen in April, indicating builders are still relying heavily on these tools.

The consistent use of incentives, alongside more frequent price cuts, suggests buyer hesitation remains high. With mortgage rates near multi-year highs, affordability continues to challenge potential homebuyers.

Regional Declines Reflect Broader Weakness

All four U.S. regions tracked by the HMI saw declines in May. The West reported the sharpest drop—down eight points—highlighting a pronounced sensitivity to interest rates and pricing in this high-cost market. The Northeast experienced the smallest drop, falling just one point, but still reflecting a broader trend of weakening sentiment.

While regional data often varies due to local economic and housing conditions, the uniform decline in builder sentiment across all areas underscores the national scope of current market challenges. Builder confidence drops in all regions indicate a more cautious outlook heading into the summer months.

Persistent Headwinds in Housing Development

High borrowing costs continue to weigh heavily on builder sentiment and consumer demand. Federal Reserve interest rate hikes, initially implemented to curb inflation, have driven mortgage rates above 7% in some cases. The result is reduced buyer purchasing power and increased holding costs for developers.

At the same time, tariff uncertainty remains a concern. Builders continue to monitor trade policy developments, particularly around construction materials. Concerns about potential increases in supply costs could further strain project budgets and timelines.

The latest NAHB report follows a modest rebound in housing starts in April, where total starts increased 1.6% month-over-month, but single-family starts declined 2.1%—the lowest level since July 2024. These figures, combined with declining builder sentiment, suggest caution remains the prevailing mood in the sector.

Builder Confidence Drops in San Gabriel Valley Outlook

For communities across the San Gabriel Valley—including El Monte, South El Monte, Baldwin Park, and Rosemead—the dip in builder confidence could lead to delays in new residential construction. These areas, which continue to face housing shortages and affordability pressures, may see fewer new projects break ground in the near term.

Local governments and developers may need to revisit their strategies to address demand. Public-private partnerships, incentives for affordable housing, and flexible zoning policies could become increasingly vital to sustaining new development.

As builder confidence drops, the path forward will depend heavily on broader economic conditions and policy responses. Rising costs, tempered buyer demand, and ongoing regulatory uncertainties may continue to challenge the housing market throughout the remainder of 2025.