The tariffs imposed on construction materials including aluminum, steel and soft wood this year by the Trump administration are taking a toll on the U.S. housing market. Politics aside, the bottom line is that the cost of many construction materials have risen dramatically at a time when home builders are also dealing with a severe shortage of skilled labor. This has driven the cost of new homes up significantly just as the Federal Reserve Board has begun to raise interest rates, making mortgages more expensive. This unfortunate combination has caused homebuilder sentiment to stall at the same level it reached in October of last year.
“Contractors’ costs for a wide range of materials and services have escalated dramatically in the past few months, putting a squeeze on profits and dimming the outlook for both public and private projects,” said the Associated General Contractors of America’s chief economist, Ken Simonson said in June after the first round of tariffs went into effect. “Tariffs that took effect or have been announced since this price data was collected will push costs up even more. Many of these increases far outstripped the 4.3 percent rise in the price index for new construction — what contractors are charging to build projects — implying that contractors’ profit margins are shrinking as they absorb some of the increased costs.”
When it comes to the cost of homes, the tariffs imposed in 2018 are essentially taxes passed onto home buyers in the form of higher prices. And while the demand for new homes remains high, buyers — especially those hoping to purchase their first home — are fearful that they will end up house poor if they make the leap into home ownership.
"Favorable economic conditions and demographic tailwinds should continue to support demand, but housing affordability has become a challenge due to ongoing price and interest rate increases," said Robert Dietz, chief economist for the National Association of Home Builders. "Unless housing affordability stabilizes, the market risks losing additional momentum as we head into 2019."
That slowdown has already begun to materialize. Sales of new single‐family homes in September 2018 were at a seasonally adjusted annual rate of 553,000,
according to estimates released jointly by the U.S. Census Bureau and the Department of Housing and Urban Development, 5.5 percent below the revised August rate of 585,000 and 13.2 percent below the September 2017 estimate of 637,000.
While lumber costs have begun to dip from their summer highs, home builders will continue to face challenges as this perfect storm of high material prices, a dearth of skilled labor, rising interest rates and wilting consumer confidence continues unabated. While many builders are attempting to stave off the problem by focusing on building homes for the move-up market, which yield higher profits, they can only do so until demand starts to dry up. And small independent builders will be the first to feel the squeeze.
Thankfully, CBUSA can help provide relief to independent builders who, on their own, lack the buying power of the corporate big boys. Through our Committed Purchase program, CBUSA members in each market across the country are empowered to enter all of their building supply needs — from drywall to lumber to roofing material and more — into our system as a collective purchase. From there, approved local suppliers access the list of needed materials and offer their bids, with the low bid generally winning the contract. While this program is invaluable in any market, it’s particularly beneficial in an unprecedented time like the one we’re currently experiencing.
There’s never been a better time to join the nation’s premiere network of independent home builders. To learn about all the valuable benefits of CBUSA membership, contact us today! And to get our latest updates, join our group on LinkedIn.