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Home Builder Sentiment Remains Strong in August

Republican presidential nominee Donald Trump speaks during an address to the National Association of Home Builders at the Fontainebleau Miami Beach hotel on August 11, 2016 in Miami Beach, Florida. Trump continued to campaign for his run for president of the United States. (Photo by
Joe Raedle/Getty Images

Home builders remain solidly confident in the market but are worried that the U.S. market is getting too hot while prices of labor and materials could be pushing up costs.

The National Association of Home Builders’ monthly confidence index ticked down one point to 67 in August. Any number above 50 indicates improving conditions. NAHB called a reading of 67 “solid.” Economists had predicted a reading of 68, flat with the prior month.

Last year’s full-year average was 68, with the index peaking in December.

Despite the decline, the index remains well above its long-term average. In fact, apart from the housing bubble that preceded the Great Recession, the index has rarely remained as high as it currently is.

“Builders continue to report strong demand for new housing, fueled by steady job and income growth along with rising household formations,” the NAHB said in its analysis. “However, they are increasingly focused on growing affordability concerns, stemming from rising construction costs, shortages of skilled labor and a dearth of buildable lots.”

President Donald Trump imposed tariffs on lumber imported from Canada in April and this year imposed tariffs on steel and aluminum. Home builders have complained tariffs have driven up the cost of their materials, although evidence for that claim is weak. Strong demand for housing is likely the major factor pushing up the prices of building materials.

Home builders complaints about labor shortages go back several years. In 2014, when the U.S. unemployment rate was 6.2 percent, the NAHB reported that “that shortages of labor and subcontractors have become substantially more widespread since 2013.” As early as 2012, just one year after the housing market hit rock bottom, builders were complaining about shortages.

Despite complaints about tariffs and long-running claims of a labor shortage, home building has boomed for several years and the SPDR S&P Homebuilders ETF XHB is up nearly 37 percent over the last five years. This year, however, it has lost about 13 percent due to concerns that growth could be slowing.

 

 

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