The housing market, which has been underperforming lately, has entered a traditionally better spell, the key spring selling season, which is considered the peak time for home sellers. Winter months normally remain subdued for home building as the weather is too wet in the south and severely chilly in the north. But spring brings about good days for housing businesses.

Normally, the season starts in March and lasts through May-June, thanks to a warmer weather after a chilly winter and buyers’ inclination to move to a new house before the next school calendar starts. However, homebuilders are off to a slow start this spring as high mortgage rates and looming tariff uncertainties are weighing on buyers’ sentiments.

 KB Home KBH reported a 17% drop in net orders for its fiscal first quarter ending Feb. 28 and revised its 2025 average selling price forecast to $480,000-$495,000, down from its previous estimate of $488,000-$498,000.

"While longer-term housing market conditions remain favorable, demand at the start of the spring selling season has been more muted than in past years," KB Home CEO Jeffrey Mezger stated during an earnings call.

Normally, home sales pick up after the Super Bowl weekend. However, this year, the anticipated surge did not materialize, leading KBH to cut its 2025 sales outlook from $7-$7.5 billion to $6.6-$7 billion (read: No More Spring Surge for Homebuilders This Year? ETFs in Focus).

Mixed Results Across the Industry

While sales of new single-family homes saw a modest rebound in February due to warmer weather and slightly lower mortgage rates, the sustainability of this winning momentum remains uncertain.

Lennar LENreported a slight 1% rise in net new orders to 18,355 but issued a weaker-than-expected forecast for the next quarter. The company projects new orders of 22,500-23,500, falling short of analysts' estimate of 23,800 homes.

Lennar CEO Jonathan Jaffe noted that despite declining mortgage rates, which are currently hovering around 6.7%, demand did not see the typical seasonal boost. Consequently, the company reduced its average sales price, after incentives, to $408,000 — down 1% year over year.

Tariff Concerns & Cost Pressures

President Trump's executive order, set to take effect in April, would impose tariffs on construction materials from Canada and Mexico. The National Association of Home Builders (NAHB) estimates that this could increase material costs by over $3 billion, translating to an average price hike of $9,200 per home.

A major concern for homebuilders is the 25% tariff on all imported steel and aluminum products. With 32% of appliances and 30% of softwood lumber coming from international trade, tariff issues would raise builders' costs, NAHB chief economist Robert Dietz stated.

In a nutshell, policy uncertainty and cost factors have dampened bullish expectations for 2025. Smaller builders, in particular, are feeling the pressure even more. Builder confidence dropped in March, reaching its lowest level in seven months.

Mortgage Rates Remain High

In addition to cost concerns, builders are grappling with elevated mortgage rates. With inflation fears rising all over again, we do not expect the Fed to cut rates faster ahead. This means a high-rate environment for longer, which is detrimental to the homebuilding business.

ETFs in Focus

SPDR S&P Homebuilders ETF XHB and iShares US Home Construction ETF ITB have lost 7.1% and 7.5%, respectively, so far this year (as of March 29, 2025). These ETFs are off 5.2% and 4.5%, respectively, over the past one-month period.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

SPDR S&P Homebuilders ETF (XHB): ETF Research Reports

iShares U.S. Home Construction ETF (ITB): ETF Research Reports

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research