Will Homebuilders Have a Cold Summer?


Housing stocks were some of the biggest winners in 2017, but have been among the worst performers this year.

So now that Americans are in the midst of the key real-estate season, let’s take a look at some of the problems ailing the sector.

Borrowing costs are the first and most obvious concern as mortgage rates shoot to seven-year highs. Sure, on one hand a strong economy helps Americans afford a home. But it’s also given the Federal Reserve a free hand to jack up interest rates.

Higher costs are the other big obstacle. Did you know lumber prices are up more than 50 percent this year? That partly results from President Trump’s decision to impose tariffs on Canadian wood, and partially results from transportation bottlenecks. Either way, it’s a big threat to profit margins.

Labor costs have also risen steadily. Government data shows construction-worker pay rising from $28.51 an hour at the start of last year to a record $29.63 in April. On top of that you have the cost of regulation, which builder group NAHB says added of $84,000 to each new home in 2016. That’s up from $65,000 just five years prior. The biggest items are new rules for developments, zoning and code changes.

In conclusion, millions of Americans still want to own a new home. And the large number of millennial families with good jobs should be a boost to the industry. But other forces are keeping builders under pressure — even during a season when they should benefit.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.