By Denny Jacob

The housing market has become more volatile over the last few months, raising fresh concerns about where the bottom is, especially after President Trump's announcement on tariffs in early April.

Wall Street is keeping a close eye on home builders, which have served as bellwethers for the larger challenges looming over the housing sector. A combination of higher home prices and mortgage rates has cooled home sales, and home builders' margins have been under pressure as they have needed to dole out incentives to drive sales.

Those same factors have continued into 2025 and some buyers have accepted that the housing market isn't reverting back to prepandemic conditions, but new economic headwinds threaten to curb activity further.

Analysts at BofA Securities on Wednesday lowered their earnings-per-share and price-objective estimates for builders ahead of earnings to reflect the challenging market conditions.

"Homebuilder stocks are already down 35% from the peak in October 2024," the analysts said. "In our view, current valuations imply return-on-equity (still high-teens percentage) will continue to decline,"

Tariffs imposed by the Trump administration pose the biggest threat to the housing market in a number of ways. Their on-again, off-again approach has left potential buyers unsure if they should go forward with their purchase.

For builders, the uncertainty will likely raise input costs at a time when they can't pass the full cost on to would-be buyers as their budgets will already be constrained by other goods that have gotten pricier. This also means they will also have to continue leaning on incentives, putting further pressure on margins.

This has made investing in home builders and related indexes challenging, even in light of the broader market selloff since President Trump's "Liberation Day" tariffs were announced. D.R. Horton's stock has lost 5.3% through Thursday's close, while KB Home has declined around 12%.

PulteGroup and Lennar, meanwhile, have seen their shares fall 9% and 9.5%, respectively. The S&P Composite 1500 Homebuilding index has retreated 7.7% through Thursday's close, while the broader S&P 500 index is just off 6.9%.

Recent quarterly results have shown just how unpredictable conditions are for home builders. D.R. Horton on Thursday lowered its outlook and reported second-quarter results that missed expectations. Executives on an earnings call said the spring selling season had been slower than expected, adding that the spring and summer would determine the second half of the fiscal year.

If buyers sit out the spring--typically the busiest time of year--that could put 2025 on track for the third straight year of home sales near multidecade lows.

Write to Denny Jacob at denny.jacob@wsj.com

(END) Dow Jones Newswires

April 21, 2025 13:59 ET (17:59 GMT)

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