Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs

  • U.S homebuilders are heartened by the strong demand and tight supply in today’s housing market, but they still can’t meet that demand as much as they might like.
  • Homebuilders are facing rising costs for land, labor and materials, especially with new tariffs on Chinese steel and aluminum in addition to duties imposed on Canadian lumber last year.
Potential homebuyers exit an open house in Redondo Beach, California.
Patrick T. Fallon | Bloomberg | Getty Images
Potential homebuyers exit an open house in Redondo Beach, California.

U.S. homebuilders are heartened by the strong demand and tight supply in today’s housing market, but they still can’t meet that demand as much as they might like. Consequently, their level of confidence is stuck in neutral.

A monthly sentiment survey from the National Association of Home Builders was unchanged in July, standing at 68. Anything above 50 is considered positive sentiment. The survey was at 64 in July of 2017 and hit a cyclical high of 74 in December.

“Consumer demand for single-family homes is holding strong this summer, buoyed by steady job growth, income gains and low unemployment in many parts of the country,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La.

But homebuilders are facing rising costs for land, labor and materials, especially with new tariffs on Chinese steel and aluminum in addition to duties imposed on Canadian lumber last year. The price of lumber spiked to a record high a few months ago and is still up over 50 percent in the past year.

“Builders need to manage these cost increases as they strive to provide competitively priced homes, especially as more first-time home buyers enter the housing market,” said NAHB Chief Economist Robert Dietz.

Homebuilders today continue to focus on the move-up and luxury sectors, and not on the entry level, where demand is strongest. Sales of newly built homes are still not even close to their historically normal levels, but prices continue to rise. Builders should be benefiting from the severe shortage of existing homes for sale, but weakened affordability stands in the way of higher sales.

Of the NAHB index’s three components, current sales conditions remained unchanged at 74. Sales expectations in the next six months dropped two points to 73, and the metric charting buyer traffic rose two points to 52.

Regionally, on a three-month moving average, builder sentiment in the Northeast rose one point to 57 while the Midwest remained unchanged at 65. The West and South each fell one point to 75 and 70, respectively.