As Trade Conflict Tension Grows, Risks Spike Too
The view most people have of home builders is that they’re, when all is said and done, sellers of the most expensive and most valuable consumer durable good most of us ever buy in our lifetimes.
The view very few people have of America’s home builders is that they’re buyers themselves–of real estate, of goods, of services, and, of course, capital. All of the money, time, and talent it takes for these items need to be invested well ahead of the time builders see a return on that investment.
Those upfront costs, particularly when it comes to paying to buy, entitle, develop land, and carry it through the time it takes to ready to go vertical, add up to a risk builders shoulder all the time. Sometimes, a great deal of investment pours into acquiring a tract that hits a snag, or several of them, or worse, a deal-killing impediment that flushes much of that investment down the toilet.
Living with this risk, even glorying in it, is what many of the human beings attracted to home building and development do, because, for them–for many of you–the reward outweighs the risk.
Risk, which is the potential exposure to loss of investments of time, money, and talent, has been intensifying of late, in part due to uncertainties rancorous global trade disputes have introduced to the process by which builders procure materials and products used to make new houses.
Grace Zhu and Lin Zhu write this morning:Barring an 11th-hour reprieve, the U.S. is scheduled to impose tariffs on $34 billion of Chinese imports starting 12:01 a.m. Eastern time Friday.
China will counter with corresponding tariffs on U.S. imports immediately after the U.S. tariffs take effect, Chinese customs officials say. U.S. exports of sport-utility vehicles as well as soybeans and other cash crops are among the goods that will be hit by the Chinese tariffs.
This trade battle involves the world’s two largest economies, and meanwhile, similar threats and skirmishes are playing out with an equal measure of antagonism in U.S. dynamics with Canada, Mexico, and Europe.
It takes optimism, confidence that all the variables in what builders pay forward will balance out in what prospective home buyers will be willing and able to pay for, for housing recoveries to sustain traction. Builders are optimists by nature, and they are confident in the forces of demographics, a strong economy and jobs growth, and an under-built housing market.
Still, when the prices they pay for what they buy–namely on materials and people’s skilled construction work–become volatile, and threaten suddenly to go way up, builders react to risk like anybody would. They look to limit exposure to it.