Lower lumber prices hold builder sentiment steady, for now

Home builders are worried about affordability, but firm demand is holding that concern in check, for now.

Home builder sentiment in September held steady at 67 on the National Association of Home Builders/Wells Fargo Housing Market Index, or HMI. Anything above 50 is considered positive sentiment.

Home builder sentiment is up from 64 one year ago, but down from its most recent high of 70 in May. Confidence among builders has been under pressure from rising costs and a continued shortage of skilled labor.

"Despite rising affordability concerns, builders continue to report firm demand for housing, especially as millennials and other newcomers enter the market," said NAHB Chairman Randy Noel, a custom home builder from LaPlace, LA. "The recent decline in lumber prices from record-high levels earlier this summer is also welcome relief, although builders still need to manage construction costs to keep homes competitively priced."

While lumber prices are down from their record highs last spring, the survey was conducted just as the threat of new tariffs on Chinese products was rising. That concern is now a reality and has builders faced with even higher costs.

Of the nearly 6,000 products listed in the latest tariffs from the Trump administration, a preliminary look by the NAHB found about 600 products either connected to home construction or to tools used to build apartments or homes. That represents $10 billion in goods, which at a 10 percent tariff rate puts a $1 billion dollar tariff on housing. This includes appliances and other kinds of home furnishings products.

"Free trade is better for builders buyers and renters," said NAHB Chief Economist Robert Dietz. "Housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish. Interest rates are also forecasted to keep rising."

Of the index's three components, current sales conditions rose one point to 74 and the component gauging expectations in the next six months increased two points to 74. Buyer traffic was unchanged at 49, the only component still in negative territory.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 54 and the South remained unchanged at 70. The West fell one point to 73 and the Midwest fell three points to 59.

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