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Shares of U.S. homebuilders fell as fears that interest rates will stay higher for longer added to concerns that President-elect Donald Trump’s potential tariffs and mass foreclosures will drive up construction costs.
Since Trump’s election victory in November, the S&P 500 homebuilding index has fallen 17.3 percent to its lowest level since July. US steelmakers and home furnishing groups have also suffered sales 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’s victory. Homebuilding giants Lennar and PulteGroup have lost 21 percent and 15 percent over the same period. The three homebuilders have lost a combined $76 billion in market value.
The declines mark a sharp turnaround from the first three quarters of last year, when shares of homebuilders rose as new sales rebounded even as interest rates remained at their highest level since 2001.
Although the average 30-year mortgage rate remained above 6 percent at the end of last year, successive rate cuts by the Federal Reserve since September had given the homebuilding sector a further boost.
But rising inventories of new and completed homes built after the pandemic are starting to weigh on supply, with Reserve Bank of St. Louis data showing a slowdown over the past year in the number of housing units under construction.
The mood among investors has been particularly sour in the past two months. “It’s (Trump’s) policy, the outlook for rates, the increase in inventory. . . The situation on the ground has definitely changed compared to a year ago,” said Jonathan Woloshin, an analyst at UBS Wealth Management in the US.
Forecasts released by the Fed in mid-December suggested that interest rates will fall in 2025 by less than previously hoped. Both analysts and companies are concerned that Trump’s “America First” policies could raise a range of costs, from building materials to access to labor.
Trump has vowed to deport millions of immigrants. Just over a quarter of construction workers are immigrants and 13 percent of workers are unauthorized, the most 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 including steel – as well as immigration restrictions and rising housing inventories – meant “the utopia of home builders with a lower interest rate. . . is full of obstacles”.
The construction market “has already hit a ceiling,” said Matthew Bouley, an analyst at Barclays.
