New home sales are on the rise, but as the trade war and wider economic uncertainty grasp the industry, builders are taking the brakes.
New home sales rose 7.4% from February to March, as buyers took advantage of the wide supply of property they can choose from due to slightly lower mortgage rates. Federal data released Wednesday. However, rates have already begun backups, and home builders are gazing at it for future slowdowns.
Federal figures show housing openings plummeted by more than 11% between February and March. Developers’ six-month sales expectations were reduced by 4% points from March to April.
“We’re looking forward to seeing you in the world,” said John Kirk, founder of Lightpath Company, a multi-family home developer in New Braunfels, Texas.
Waiting and looking is very bad for construction.
Anirban Basu, Chief Economist, Related Builders and Contractors
The housing construction industry is not particularly vulnerable to President Donald Trump’s tariffs, but his mercury trade policy still has an impact on the business.
NAHB estimates that only 7% of the materials used in new home construction are imported. However, contractors and developers are already seeing higher material costs and supply chain disruptions. As many vendors cannot guarantee price levels for the next few months, some builders fear they cannot rely on current cost estimates, making it difficult to move projects beyond the planning stage. The growing resistance to real estate among consumers is increasing tension, ensuring more homes can be stacked into the market.
“The financial basis for moving the project forward is no longer gone,” said Anneal Bambus, chief economist for the associated builder and contractor trade group. “To see it as a standby is very bad for construction,” he said, adding that he hopes construction data will reveal a deeper slowdown by the summer.
Dr. Houghton, a leading national home builder, lowered the outlook for that year last week, but reassured investors that handling the cost impact from the trade war is “good positioned.” Meanwhile, some small developers have warned that they don’t have much wiggling room.
“It seems like we’ve been receiving letters from our suppliers every month since January, and we know that material costs are rising,” said Joshua Correa, owner of Divinio Homes, a Dallas home builder.
Correa said he recently asked lenders to expand their funds in case project costs rise unexpectedly or if they are on the market for longer than usual, adding that the newly built home is already in it. He also said he has been following unusually pointed questions recently about the impact of trade on the housing market, such as “Where do the wooden floors come from, which country do they come from? Will they be affected by tariffs?”
We receive letters from our suppliers every month, and we recognize that material costs are rising.
Joshua Correa, owner of Divinio Holmes in Dallas.
“It’s a psychological impact on our buyers, our investors,” Correa said. “That’s too many decisions.”
Pressure in some housing markets is eased. The NBC News Home Buyer Index measures the relatively ease of home discovery and purchasing in more than 1,000 counties across the country, but shows the decline in difficulty in March as competition and supply constraints calm down in many parts of the country.
However, some of these improvements reflect buyers’ retreat from the market. The index’s measure of economic instability rose for the first time in two years last month, shaping consumer decisions about when and when to head home. There are particularly clear indications in the south as competition is declining across the wide strips of central Texas and eastern Florida.
By the end of January, Florida had more homes for sale than ever since 2012, Redfin reported in late February after a 23% stock surge from the previous year. The newly built property collided with the market, where buyers stayed, turned off at sudden prices and mortgage rates, strengthening the weather threat and associated surges in insurance costs, Redfin said.
Weekly demand for 30-year fixed-rate mortgages nationwide has plummeted nearly 13%, the Mortgage Bankers Association reported Wednesday.
Not all builders are affected the same way. Some are already working on key operational issues, while others are preparing a stable signal to deal with turbulence.
Tommy Carter, shop manager at Sexson Mechanical Co., a contracting company in Greenwood, Indiana, said the manufacturer has already flagged it as “added extra tariffs on equipment ordered before the tariffs, but was later delivered.”
He shared several notifications from suppliers with NBC News last week, warning Sexson of price increases from 2% to 91% on parts such as valves and other common components, citing the universal obligation of China and Trump of 10%.
Carter said the contractors are “scrambling” to buy “before the hammers get off,” adding that he expects several ongoing builds to halt in the coming months due to the exorbitant increase in costs.
Tim Martin, who owns Oklahoma Royal Homes in Claremore, Oklahoma, said that even a sudden price hike for certain materials is easy to manage for players in many industries. The HVAC system could rise by $300, he said, but that can be ignored in a $1 million home build.
Denny Van Mooargem, president of Regency Homes in the Omaha, Nebraska area, has raised concerns about tariffs on Canadian wood, but so far he has not taken any drastic action. The timber will remain temporarily exempt from Trump’s tariffs in Canada until the Commerce Department concludes a review of their imports.
“We may be thinking about autumn, but we think it’s a timber issue,” Van Moulegem said. He has stabilized home prices for now, but said that the high timber tariff could ultimately add $10,000 to the price of the $500,000 property.
Kirk, Texas, said he is considering sourcing more materials locally, but is waiting to see which tariffs stick. “The long bells are ringing, but it’s not this bottle yet,” he said.
Tim Negris, executive vice president of construction services company Moca Systems, said that when some builders stock up supply, warehouse operators who contribute to the industry will benefit from benefits. High demand for warehouses could encourage construction of more storage space, even if builders recoup their new homes.
“A lot of these builders say, ‘Oops, OK, let’s sell and fill out what we get and stock up on as much material as possible,'” Negris said. He added that apartment builders, who are already facing tough market conditions, are particularly keen to drive supplies away into socks.
Basu also said the outlook for multi-family construction looks harsh. “The more expensive the cost of building these products, the less likely these projects will move forward, at least in the short term,” he said.