U.S. homebuilder stocks are sliding on fears of higher interest rates and Trump tariffs
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Shares of U.S. homebuilders have slumped as fears that interest rates could remain higher for longer add to fears that President-elect Donald Trump’s possible tariffs and mass deportations will increase construction costs.
Since Trump’s election victory in November, the S&P 500 housing index has fallen 17.3 percent to its lowest level since July. U.S. steelmakers and home furnishings groups also suffered sell-offs after a two-year post-pandemic boom.
Shares of DR Horton, America’s largest homebuilder, have fallen 17 percent in the two months since Trump won. Homebuilding giants Lennar and PulteGroup have lost 21 percent and 15 percent, respectively, over the same period. The three homebuilders have lost a combined market value of $76 billion.
The declines represent a significant reversal from the first three quarters of last year, when homebuilder stocks rose sharply as new sales rebounded even as interest rates were at their highest since 2001.
Although the average 30-year mortgage rate was still above 6 percent at the end of last year, the Federal Reserve’s successive rate cuts since September had further boosted the homebuilding sector.
But rising inventories of new and completed homes built in the wake of the pandemic are starting to weigh on supply, data from the Reserve Bank of St. Louis show a slowdown over the last year in the number of residential units under construction.
The sentiment among investors has deteriorated, particularly in the last two months. “It’s (Trump’s) policy, the interest rate outlook, rising inventories…”. . “The situation on the ground has definitely changed compared to last year,” said Jonathan Woloshin, an analyst at UBS Wealth Management in the US.
The forecasts published by the Fed in mid-December suggest that interest rates will fall less sharply in 2025 than previously hoped. Both analysts and companies fear that Trump’s “America First” policies could drive up a range of costs, from construction materials to access to labor.
Trump has promised to deport millions of migrants. Just over a quarter of construction workers are immigrants 13 percent of employees are illegalthe largest share of any sector, according to U.S. Census Bureau data.
In December, Barclays downgraded DR Horton, PulteGroup and KB Home, writing in a note to clients that a mix of tariffs on vital building materials like steel – as well as immigration restrictions and rising home inventories – meant homebuilders’ “lower interest rate utopia.” . . is fraught with obstacles.”
The construction market “has now reached a ceiling,” said Matthew Bouley, an analyst at Barclays.
