As it currently stands, the housing market is already feeling the pangs of rising interest rates crimping homebuyer enthusiasm, but adding to that issue will be the cost to build homes increasing substantially as tariffs have elevated the costs of construction–materials like lumber, steel and aluminum as well as U.S. tariffs on $200 billion in Chinese imports like countertops and furniture could increase construction costs 20% to 30%.
Existing homeowners wishing to perform renovations will also feel the proverbial pain in their pockets. As such, they will seek ways to curb costs or even abandon plans for renovations altogether.
Even if a homebuilder does decide to take on a project, the increased costs eventually get passed on to the consumer, translating in higher real estate prices that will further affect the real estate market. Nonetheless, some market experts feel that the real estate market is underpinned by strong fundamentals despite the wave of rising rates.
“I think fundamentals are strong out there, but I think buyers are going to continue to be involved in the market particularly at the low end,” said Susan Maklari, homebuilder and building products analyst at Credit Suisse. “That will come into play in the builder stocks but we obviously think the upside is not what it was before. … We see the potential for upside but less than we did before.”
“One of the things you probably could see is a seasonal kind of bounce back that happens as investors start to think about 2019, and the spring selling season that comes in early February. There probably could be a sense that even with the 10-year at 3.27 and 30-year mortgages at 4.7, these companies are going to deliver pretty decent growth rates,” Maklari added.
For more real estate trends, visit ETFTrends.com