By Rebecca Picciotto

The spring home-building season is off to a rocky start.

Housing starts, a measure of home construction, dropped 11.4% in March from February, according to new Census Bureau data. That marked the steepest plunge in a year.

Home-building giant D.R. Horton also signaled that the market for new homes is shaping up worse than anticipated. The company on Thursday missed earnings expectations and cut its full-year guidance, citing a slower selling season than it had hoped for.

Stubbornly high home prices and mortgage rates have kept home buyers on the sidelines for months, forcing many builders to offer incentives and discounts to close their contracts. That muted demand has discouraged builders from putting more shovels in the ground.

Now, President Trump's tariffs threaten to hobble the market for new homes further. Economists say the trade war is increasing the likelihood of recession. Americans tend to postpone big purchases when they are concerned about a slumping economy, fear that their jobs may be at risk or worry about stock-market losses.

Home builders are also vulnerable to higher costs on steel, glass and other imported materials. About 7% of the goods used in residential construction are imported, primarily from Canada, Mexico and China, which face Trump's tariff threats.

The administration's deportation of workers without permanent legal status is another blow to an industry that relies to some extent on these laborers.

Housing economists will be watching closely to see if existing homes, which represent about 90% of overall sales and are due to be announced on April 24, show any greater resilience than the new-home market.

Single-family-home construction led the housing-starts slowdown with a 14.2% decline from February, and a 9.7% drop from the year before. The price of new homes have eased a bit from their peak as builders offer mortgage-rate buydowns and other incentives to clear inventory, but inventory levels of newly built homes still remain at their highest in 16 years.

There were some bright spots. Housing starts in the Midwest were 76.2% higher than February. And permits for new housing units, a metric of future construction, ticked up slightly with a 1.6% increase from February. Housing starts are also a notoriously volatile number, and economists tend not to place too much emphasis on any one month of activity.

D.R. Horton, meanwhile, downplayed the impact of tariffs on its business. The company said it expects its large size will help it absorb any near-term cost shocks from new tariffs.

"We do expect to be able to continue to leverage our relationships and our scale to navigate the cost environment better than smaller builders, " Jessica Hansen, D.R. Horton's senior vice president of communications and people, said on an earnings call Thursday.

Still, D.R. Horton executives on the call said that downbeat consumer sentiment from escalating economic uncertainty is pinching its margins.

The builder is now forecasting its 2025 revenue in the range of $33.3 billion to $34.8 billion, down from $36 billion to $37.5 billion. And it expects to close between 85,000 and 87,000 homes, instead of its original 90,000-to-92,000 guidance.

Builders' expectations for single-family-home sales in the next six months fell four points in April, according to a monthly survey from the National Association of Home Builders.

Write to Rebecca Picciotto at Rebecca.Picciotto@wsj.com

(END) Dow Jones Newswires

April 17, 2025 12:30 ET (16:30 GMT)

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