We are in a nationwide housing shortage, as we’ve reported on plenty on this program. And when there’s a shortage of anything in this economy, it’s often good news for the people that produce that thing.
Well, that’s not the case in the housing market right now.
Homebuilder confidence fell sharply last month. That’s according to new survey data from the National Association of Home Builders.
The housing market right now is a tale of two time horizons.
In the long term, homebuilding is a good business to be in, said Anirban Basu, CEO of Sage Policy Group.
“It's outrageously good for homebuilders, as good as almost any industry in America, with the possible exception of things like artificial intelligence,” said Basu.
He said it comes down to demographics. Millennials are the country’s largest generational cohort. And many of them are entering peak earning years and having kids.
“And they, like other generations, have a demand for the American dream. They want to own homes, they wanna raise families in homes that they own,” said Basu.
Here in the short term, though, the big problem for homebuilders is they just can’t produce houses those families can afford. There are a bunch of different reasons for that, said Basu. One is stepped-up immigration enforcement against the many undocumented workers in the industry.
“That could cause further shortages of workers and therefore higher cost of delivering construction services,” said Basu.
Plus, financing costs are still elevated, said Rose Quint, vice president for survey research at the National Association of Home Builders.
“Builders are telling us that these high mortgage rates are keeping buyers on the sidelines, and that’s been the reason behind a rather soft spring selling season,” said Quint.
And of course, there’s the whole tariff rollercoaster. The 30% tax on most Chinese imports is less than before, but still significant. And Quint said homebuilders import a lot from China.
”We get appliances, a lot of lighting fixtures, a lot of trim, a lot of doors,” said Quint.
Add these problems all together, and it’s rough out there for many homebuilders. Steven Ramsey is deputy research director at Thompson Research Group. And he doesn’t see conditions for homebuilders improving this year.
But looking ahead, “I mean, if the horizon is long enough, the demand is there and there is not enough homes,” said Ramsey. “So that is a good thing over the long horizon.”
Ramsey said the challenge for homebuilders right now is figuring out how to stay afloat all the way to that horizon.
