The U.S. real estate industry has been eager for interest-rate relief in recent years. But not quite like this.
Government bond yields slumped Thursday — a welcome sight for everything from homebuilders to warehouse property owners. But it’s been spurred by President Donald Trump’s sweeping tariff announcement this week, which threatens to boost costs and weigh on profits for the companies.
Real estate is especially vulnerable to tariffs because of the many kinds of materials — from steel and wood to appliances — that need to be imported to build a house, apartment building, office tower or warehouse. It’s not just the costs — which are already the highest in at least 27 years — but the delays that any increased import tax could cause. Warehouses themselves are a key point in the supply chain to help move around consumer goods from ships to construction sites.
Homebuilder Lennar Corp. dropped 4.8% to $110.11 at 12:20 p.m. in intraday trading Thursday in New York, the lowest since November 2023. D.R. Horton Inc. slipped 3%, while Toll Bros. Inc. fell 6.7%. TopBuild Corp., which installs insulation, tumbled 8%.
Industrial property owners slumped too. Prologis Inc., the world’s largest warehouse landlord, dropped as much as 8.5% — the biggest intraday decline since 2022. Smaller regional players Terreno Realty Corp. and Rexford Industrial Realty Inc. sank as well.
Apartment owner Equity Residential was down 2.6%, while AvalonBay Communities Inc. dropped 2.5%.
For homebuilders, “it’s costs and the knock-on effect from weaker consumer confidence,” Bloomberg Intelligence Analyst Drew Reading said. “Builders do not have much pricing power right now given where affordability and demand are, so it will be more of a challenge to pass on costs to consumers.”
Yields on benchmark Treasuries slumped Thursday, which could result in lower mortgage rates over time. But whether that actually helps lure more buyers off the sidelines will depend on how confident consumers are feeling.
“The uncertain and likely negative impact to housing demand overall likely outweighs all, even with a little relief in interest rates,” Barclays Plc analysts said in a note to clients Thursday.
For homebuilders, sales of new properties have had a rocky start to this year, with transactions slumping in January and then picking up slightly in the following month. Lennar’s Co-Chief Executive Officer Stuart Miller said last month there’s been a “challenging” macroeconomic environment that builders have had to work through.
“Real downside risks to earnings have emerged, in our view, in the forms of consumer confidence having fallen sharply as well as the impact of potential tariffs,” JPMorgan Chase & Co. analyst Michael Rehaut said Thursday in a note to clients. In terms of the outlook for demand, “employment growth remains on track to decelerate, affordability continues to be highly challenged and consumer confidence has taken a sharp turn downward over the past three months.”
For months, property companies have been warning about the potential impact from tariffs. Prologis’s Chief Executive Officer Hamid Moghadam, who is expected to step down from that role next year, said in a January earnings call that tariffs would likely be “extremely inflationary,” especially when coupled with constraints on labor.
Property developers are already struggling with price pressures. Single-family home construction costs hit a record last year, accounting for about 64% of the average price of a new home, according to a National Association of Home Builders survey that dates back to 1998.
UBS Group AG analysts including John Lovallo and Spencer Kaufman said import tariffs could increase the cost to build an average house by about $6,400. And it may be tough to pass on all of those costs to the consumers given already “meaningful” affordability challenges, the analysts said.
