Homebuilder stocks fell on concern new tariffs by the Trump administration on Canadian softwood lumber imports will raise costs. Source: CNBC News
The iShares U.S. Home Construction ETF (ITB) fell about 1%. PulteGroup’s stock closed down almost 4%, and Toll Brothers shares ended the day nearly 1% lower. PulteGroup also said its first-quarter results missed analyst estimates.
Shares of DR Horton also pulled back, closing down over 1%.
“We expect builders to attempt to combine surcharges to customers with some acceptance of lower margins as a way of coping,” wrote Carl Reichardt of BTIG.
“Expect stocks to react negatively today with volatility to come as this issue plays out.”
The analyst notes that lumber accounts for 8% to 12% of the cost of a new home.
The trade action, the culmination of a long-running dispute between the two countries, wasn’t totally unexpected as lumber futures have surged already this year in anticipation of a possible escalation of this sort by President Donald Trump and US Commerce Secretary Wilbur Ross.
“The reason we’re putting it on is because Canada’s forests are owned by the various provinces and the provinces charge very discounted … prices to the lumbermen, which in turn lets them get subsidized low prices coming into the US,” Ross told CNBC.
“It seems unfair because in the US most of the forests are privately owned and, therefore, they pay full market price,” he said. Lumber future for May delivery fell 2.53% to $385.10 per thousand board feet as investors took profits after the already blockbuster year for the commodity.
“Lumber futures should move higher, but this announcement has been anticipated,” said Brian Kelly of BKCM. We “might get a sell the news” event. Lumber futures are up more than 20% this year.
“It was priced in a couple weeks ago when there was talk the tariff was going to happen,” said Daniel Flynn, trader at The PRICE Futures Group.
“Markets tend to overreact on a headline. Right now, nervousness” in the market.
Canadian lumber stocks, on the other hand, rose sharply, including Canfor shares, which popped more than 6%.