Homebuilders’ optimism is retreating, and the factors behind the decline – land, labor and lumber – could affect every American who owns or rents a house.
A gauge of sentiment among homebuilders declined in March for a third straight month. While builders are still positive about the housing market, they see some potential cost pinches, some of which are related to government policy.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) fell this month to 70, the lowest reading since last November.
The stock market reacted, with major U.S. homebuilders including Lennar (LEN), PulteGroup (PHM), DR Horton and (DHI) Toll Brothers (TOL) trading lower.
|DHI||D.R. HORTON INC.||94.82||+2.38||+2.57%|
The retreat in homebuilders’ optimism comes amid concerns that tariffs will increase raw costs of building a home.
In late January, PulteGroup noted that rising costs are likely to weigh on 2018 gross margins despite the strong housing market.
The NAHB released a report following the Commerce Department’s decision to impose duties on Canadian lumber imports. According to the NAHB, “American home builders need reasonably priced lumber to build homes that average working families can afford.”
The NAHB noted that U.S. domestic production of lumber is not enough to meet demand, and the country has made up for this shortfall by importing. Most of those imports came from Canada.
The NAHB called the tariffs “a tax on American home builders and home buyers, making housing less affordable for American families.”
he NAHB estimates the new duty will increase the average price of a single-family home by $1,236, and that in turn could mean higher mortgages and steeper rent.
While homebuilders’ sentiment has decreased, it is important to keep the drop in context. The latest reading of 70 is still above the average reading of 68 during the housing bubble before the financial crisis.
The NAHB release added that “builders’ optimism continues to be fueled by growing consumer demand for housing and confidence in the market.” The NAHB added that builders voiced concerns about finding buildable lots.