Homebuilder sentiment steady as demand, optimism zigzag

Confidence among homebuilders held steady in July, matching the lowest level of the year, as solid job gains support demand while elevated material costs pressure developers, according to a report Tuesday from the National Association of Home Builders/Wells Fargo.

The Housing Market Index unchanged from prior the month at 68 (the estimate was 68). The gauge of the six-month sales outlook fell to 73, the lowest since September, from 75. The current sales measure for single-family homes remained unchanged at 74. The gauge of prospective buyer traffic rose to 52, the highest since February, from 50.

Homebuilder sentiment
Contractors work on the roof of a home under construction in the Toll Brothers Inc. Regency at Palisades community in Charlotte, North Carolina, U.S., on Friday, Feb. 24, 2017. The U.S. Census Bureau released construction spending figures on March 1. Photographer: Luke Sharrett/Bloomberg

While sentiment remains elevated and near the highest level of the expansion, gains have stalled amid more expensive materials, partly the result of tariffs on imported lumber. That's making it tougher to construct homes at attractive prices, especially for customers hoping to buy for the first time, and mortgage rates are also close to a seven-year high.

At the same time, bigger after-tax paychecks and a strong labor market are supporting homebuilders' views. A recent drop in lumber prices from a record high in May could also provide some relief.

Government data due Wednesday are projected to show builders broke ground on fewer homes in June following the fastest pace of starts since 2007, while permits picked up from an eight-month low.

"Builders are encouraged by growing housing demand, but they continue to be burdened by rising construction material costs," NAHB Chief Economist Robert Dietz said in a statement.

The index fell in the West to its lowest level in more than a year, and also declined in the Northeast. The gauge rose in the South and remained unchanged in the Midwest.

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