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Hurricanes hit homebuilder confidence hard in September

  • There was a 3 point drop in September on a monthly index of homebuilder sentiment.
  • A labor shortage already existed in the construction industry.
  • Two severely damaging hurricanes only made matters worse this month.
A worker attaches roofing to a house under construction at the KB Home Magnolia at Patterson Ranch community in Fremont, California.
David Paul Morris | Bloomberg | Getty Images
A worker attaches roofing to a house under construction at the KB Home Magnolia at Patterson Ranch community in Fremont, California.

There was already a labor shortage in the construction industry, and two severe hurricanes only made matters worse. That may be the reason behind a 3 point drop in September on a monthly index of homebuilder sentiment.

Builder confidence dropped to 64 on the National Association of Home Builders/Wells Fargo Housing Market Index, from a downwardly revised August reading. Anything above 50 on the index is considered positive territory. The index stood at 65 in September 2016.

"The recent hurricanes have intensified our members' concerns about the availability of labor and the cost of building materials," said NAHB Chairman Granger MacDonald, a homebuilder and developer from Kerrville, Texas. "Once the rebuilding process is underway, I expect builder confidence will return to the high levels we saw this spring."

Ironically, builder sentiment jumped significantly last spring after the Trump administration loosened environmental regulations specifically involving water and wetlands.

Of the index's three components, current sales conditions fell 4 points, to 70, and the index measuring sales expectations in the next six months dropped 4 points, to 74. Buyer traffic fell 1 point to 47, the only component still in negative territory.

While labor is clearly a problem for builders, high prices are also keeping a lot of buyers on the sidelines. Homebuilders should be benefiting from a severe lack of supply of existing homes for sale, but the price premium for new construction is historically high right now. Builders say they cannot lower prices because their costs for land, labor, materials and regulation compliance are too high.

Sales of newly built homes dropped nearly 10 percent in July, according to the U.S. Census, with high prices being blamed for the fall. Single-family housing starts are still well below historical norms, and given the current demand for housing, they should be much higher. Builders say they are trying to put up more low-priced, entry-level products, but they are still a small percentage of new product.

Regionally, on a three-month moving average, homebuilder sentiment in the West increased 3 points to 77 and in the Northeast rose 1 point to 49. The South dropped 1 point to 66 and the Midwest fell 3 points to 63.