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Shares in US homebuilders have fallen as fears that interest rates will remain high for longer add to concerns that President-elect Donald Trump's potential rate hikes and mass evictions will raise 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. American steel producers and domestic supply groups have also struggled to sell after the two-year pandemic.
Shares in DR Horton, America's largest homebuilder, fell 17 percent in the two months after Trump's victory. Real estate giants Lennar and PulteGroup lost 21 percent and 15 percent over the same period. The three house builders have spent a combined $76bn in market value.
The decline marks a sharp turnaround from the first three quarters of last year, when shares of homebuilders rose as new sales rebounded and interest rates stood 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 have given the housing sector a boost.
But rising prices for new and finished homes built after the pandemic have begun to provide, with Reserve Bank of St. Louis data showing. slow last year in the number of houses under construction.
The mood among investors has been very sour over the past two months. “It's (Trump's) policy, the idea of paying prices, inflation. . . The situation on the ground has definitely changed compared to last year, said Jonathan Woloshin, an analyst at UBS Wealth Management in the US.
Forecasts released by the Fed in mid-December suggested that interest rates would fall by 2025 below previous expectations. Both analysts and companies are concerned that Trump's “America First” policies could raise a host of costs, from construction materials to labor.
Trump has promised to deport millions of immigrants. Just over a quarter of construction workers are from other countries and 13 percent of workers are unauthorizedthe largest share of any sector, according to US census Bureau data.
In December, Barclays downgraded DR Horton, PulteGroup and KB Homes, writing in a note to clients that a mix of prices for key building materials including steel – along with curbs on immigration and rising domestic prices – meant it was a “low-rate utopia.” . . is full of obstacles.
The construction market “has now hit a ceiling”, said Matthew Bouley, an analyst at Barclays.