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Shares in US homebuilders have tumbled as fears that interest rates will remain higher for longer add to concerns that president-elect Donald Trump’s potential tariffs and mass deportations will raise construction costs.
Since Trump’s election win in November the S&P 500 homebuilding index has dropped 17.3 per cent to its lowest level since July. US steel manufacturers and home furnishing groups have also suffered sell-offs following a two-year post-pandemic boom.
Shares in DR Horton, America’s largest home builder, have fallen 17 per cent in the two months since Trump’s victory. Residential construction giants Lennar and PulteGroup have lost 21 per cent and 15 per cent over the same period. The three homebuilders have shed a combined $76bn in market value.
The declines mark a sharp reversal from the first three-quarters of last year, when shares in homebuilders had surged as new sales rebounded even as interest rates stood at their highest level since 2001.
Although the average 30-year mortgage rate remained above 6 per cent 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 have begun 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 particularly soured in the last two months. “It’s [Trump’s] policy, the outlook for rates, rising inventory . . . The situation on the ground has definitely changed compared to one year ago,” said Jonathan Woloshin, an analyst at UBS Wealth Management in the US.
Forecasts released by the Fed in mid-December suggested 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 host of costs, from building materials to access to labour.
Trump has pledged to deport millions of migrants. Just over one quarter of construction workers are immigrants and 13 per cent of workers are unauthorised, the largest share of any sector, according to US 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 construction materials including steel — as well as immigration curbs and rising home inventories — meant homebuilders’ “utopia of lower interest rate . . . is fraught with obstacles”.
The construction market “has now hit a ceiling”, said Matthew Bouley, an analyst at Barclays.
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