Editor’s Note: Both my children would dearly like to buy a house. They are each in their 30s and have grown tired of apartment living.

I understand their frustration. When I was their age, residential housing was more affordable than it is now. I bought my first house in 1985 for $99,000.

Since then, the cost of housing has grown much faster than wages. That makes it difficult for a single wage earner to buy a house in most cities.

But if the recent economic data coming out regarding homebuilding and mortgage applications are a sign of things to come, then my kids may be able to afford a new house sooner than they think!

Confidence Check

In my role as the chief investment officer for Personal Finance, I begin each week with a preview of what I believe are the most important story lines emerging in the US economy. At the start of this week, I advised my readers to watch out for the NAHB (National Association of Home Builders)/Wells Fargo Housing Market Index (HMI) report for February.

According to the NAHB, “The HMI is based on a monthly survey of single-family builders who are asked to rate three specific conditions of the housing market, including present sales of new single-family homes, expected sales of single-family homes for the next six months, and traffic of prospective buyers of new single-family homes.”

The index reflects builder confidence on a scale of 0-100. A score above 50 means sentiment is more positive than negative, while a score below 50 reflects more pessimism. Last month, the index came in at 47, which was one point higher than in December.

I concluded that piece by noting: “If the index comes in below 47, then Wall Street may construe that score as one more reason why it should wait until there is more evidence of economic growth before switching back into a risk-on mode.

Homebuilder Sentiment Plummets

The next morning, we learned that the HMI index fell to 42 this month, well below last month’s figure. According to the NAHB, “Builder sentiment fell sharply in February over concerns on tariffs, elevated mortgage rates and high housing costs.”

The survey further observed, “While builders hold out hope for pro-development policies, particularly for regulatory reform, policy uncertainty and cost factors created a reset for 2025 expectations in the most recent HMI.”

By itself, this news is not a major setback for the economy since it is based on conjecture about the future rather facts about the past. However, I cautioned my readers that, “this development means that Wall Street will giving closer scrutiny to tomorrow’s MBA (Mortgage Brokers Association) Weekly Applications Survey for last month. If it shows a slowdown in mortgage applications, then homebuilder stocks are all but certain to take a hit.”

Mortgage Applications on the Decline

The following day, we learned that mortgage applications fell 6.6 percent last week according to the Mortgage Bankers Assocation (MBA) weekly survey. An MBA executive observed, “Despite mortgage rates declining, with the 30-year fixed mortgage rate dropping to 6.93 percent, mortgage applications decreased to their slowest pace since the beginning of the year.”

So now we have two data points that suggest homebuying activity is declining heading into what is usually the busiest time of the year for residential real estate purchases. That is potentially significant since real estate construction is a major contributor to most regional economies throughout the United States. Less building decreases demand for the trades that support the entire homebuilding process and also means less furniture and appliances purchased to fill those homes.

It’s too soon to call this a trend, but if the current slowdown in mortgage applications persists into next month then Wall Street may feel compelled to revise its projections for economic growth during the first half of this year.

Get Your Checkbooks Ready!

Wall Street is starting to take notice. Since cresting above $113 three weeks ago, the SPDR S&P Homebuilders ETF (NYSE: XHB) fell below $103 two days ago (circled area in chart below). That puts it back to where it was nearly one year ago.

Despite its name, this fund is not a pure play on homebuilders. Its top three holdings consist entirely of non-homebuilders, led by home goods retailer WIlliams-Sonoma (NYSE: WSM), building products wholesaler Masco Corp. (NYSE: MAS), and home improvement chain The Home Depot (NYSE: HD).

In that regard, it can be viewed more as a proxy of the overall impact that homebuilding activity is expected to have on the overall economy. And right now, it suggests that pretty soon we may see a drop in real estate prices for the first time since the early days of the pandemic five years ago.

Kids, get your checkbooks ready!