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U.S. homebuilders are slowly losing confidence in their business.
A monthly index of builder sentiment fell 1 point to 67 in August, the lowest level in 11 months. Sentiment was unchanged from one year ago, according to the National Association of Home Builders.
Anything above 50 is considered positive sentiment, yet there are signs of growing concern among builders. The index hit a recent high of 74 last December.
"The good news is that builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations," said NAHB Chairman Randy Noel, a homebuilder from LaPlace, Louisiana. "However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots."
Sales of newly built homes fell 5.3 percent from May to June, according to the latest reading from the U.S. Census. June new home sales, meanwhile, were a meager 2 percent higher compared with the same month last year. Prices for new and existing homes continue to rise, and higher mortgage rates this year have only weakened affordability further.
Mortgage applications to purchase a home have been falling all month, even though interest rates are currently moving in a very narrow range.
Of the NAHB index's three components, current sales conditions fell 1 point to 73. Sales expectations over the next six months fell 1 point to 72. Buyer traffic dropped 2 points to 49, the only component in negative territory.
The housing market has been softening for the last several months, as younger homebuyers are increasingly unable to find affordable homes. Homebuilders are ramping up production slowly, after the worst housing crash in history, but they are mostly building on the move-up and high-end levels, not at the entry level where demand is strongest. High construction costs make it more difficult to profit on low-priced homes.
Builders are also concerned that material prices will increase even more as President Donald Trump ramps up pressure on trading partners.
"Builders continue to monitor how tariffs and the growing threat of a trade war are affecting key building material prices, including lumber," said NAHB chief economist Robert Dietz. "These cost increases, coupled with rising interest rates, are putting upward pressure on home prices and contributing to growing affordability challenges."
Looking at three-month moving averages for regional sentiment scores, the South and West each held steady at 70 and 75, respectively. The Northeast and the Midwest each fell 3 points, to 54 and 62 respectively.