U.S. Home Builder Stocks Fall on Fears of Rate Hikes, Trump Tariffs

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Shares of U.S. homebuilders fell as concerns that interest rates will stay higher for longer add to worries that President-elect Donald Trump's potential tariffs and mass evictions will raise housing costs. construction.

Since Trump's election victory in November, the S&P 500 housing construction index has fallen 17.3 percent to its lowest level since July. American steel makers and furniture groups also suffered massive sell-offs after two years of post-pandemic boom.

Shares of DR Horton, the Americas' largest homebuilder, fell 17 percent in the two months following Trump's victory. Homebuilding giants Lennar and PulteGroup lost 21 percent and 15 percent over the same period. The three homebuilders together lost $76 billion in market value.

The declines mark a sharp reversal from the first three quarters of last year, when shares of homebuilders surged as new sales rebounded even as interest rates held at their highest levels 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 have given new momentum to the homebuilding sector.

But rising inventories of new and completed homes built after the pandemic have begun to weigh on supply, with data from the Reserve Bank of St Louis showing a slowdown over the past year in the number of homes under construction.

Investor sentiment has particularly deteriorated over the past two months. It is [Trumps] policy, the rate outlook, rising stocks… The situation on the ground has definitely changed compared to a year ago, said Jonathan Woloshin, analyst at UBS Wealth Management in the United States.

Forecasts released by the Fed in mid-December suggest that interest rates will fall less than expected in 2025. Analysts and businesses worry that Trump's America First policies will increase a host of costs, since construction materials to access to labor.

Trump has pledged to deport millions of migrants. Just over a quarter of construction workers are immigrants and 13 percent of workers are unauthorized, the largest share of any industry, 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 combination of tariffs on key building materials, including steel, as well as restrictions on immigration and an increase in housing stock meant for home builders the utopia of a lower interest rate… fraught with pitfalls.

The construction market has now reached a ceiling, said Matthew Bouley, an analyst at Barclays.

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