Why home builder sentiment is in the dumps (hint: tariffs)
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The nation's home builders are less than thrilled with the Trump economy thus far.
Why it matters: The headwinds for the companies that build single-family homes are multiplying, a bad sign for a country facing a shortage of affordable homes.
By the numbers: The National Association of Home Builders Housing Market Index ticked up a scant one point to 40 in April from the previous month, but that was before the recent mortgage-rate increase registered. (Any number below 50 indicates negative sentiment.)
- 60% of builders said their materials costs have gone up by an average of 6.3% this year, adding $10,900 per average single-family home.
- Meanwhile: U.S. homes are selling at their slowest pace in 6 years, per real estate site Redfin's data. The typical home that went under contract in March sat on the market for about 1.5 months (47 days). Double what it was during the frenzied pandemic market.
- A bright spot for buyers: Home prices are growing at the slowest pace in a year and a half, up 2.5% in March from last year. But that's hardly good news for home builders.
The big picture: It's not only that tariffs raise the cost of building a house.
- The drastic "Liberation Day" rollout sparked a Treasury bond selloff that's pushed mortgage rates higher, just as they were starting to cool. The average 30-year-mortgage rate is hovering right below 7% now, according to Mortgage News Daily, after spiking last week. (It's still below January levels, though.)
- Rising rates and economic uncertainty dampen demand for houses. Meanwhile, the threat of an immigration crackdown hangs over an industry that relies heavily on undocumented labor.
What they said: "You have to be crazy to start a new home project right now!'" a home builder told HFE Economics, per a note the ADJ GROUP sent out Wednesday.
- "The prices of materials over the next three months seem sure to rise, but no one knows by how much," HFE writes. "Tariff risks pose a huge threat to profit margins in this industry and to the prices of everything overall."
- They point out that if, say, the price of Canadian lumber goes up that would likely lead to U.S. producers to raise prices, too.
The bottom line: There was lots of campaign talk about easing the housing shortage with less regulation, but federal policies around trade are making it harder to build homes.
