We Expect Homebuilders Will Push Back on Tariff-Related Price Increases from Suppliers

On April 2, President Donald Trump announced sweeping tariffs, featuring a minimum 10% tariff on all US imports and higher tariff rates for select countries.

Big picture: According to data from the US Census Bureau and the National Association of Home Builders, imported goods account for less than 10% of the total value of all goods used to construct a new home.

• China is the largest trade partner for building products, accounting for nearly 30% of imports in 2023. Mexico is the second largest at 11%, followed by Canada at 8%.
• Even with a higher tariff rate on China imports, we continue to estimate that tariffs would increase construction costs by a low-single-digit percentage. Goods imported from Canada and Mexico that comply with the United States-Mexico-Canada Agreement remain exempt from tariffs.

Why it matters: Many homebuilders have become more aggressive with incentives to maintain a steady sales pace, so we think the homebuilding industry would push back on price increases on building products.

• We believe large homebuilders have meaningful bargaining power with building product suppliers, as evidenced by the lower profit margins often earned by manufacturers’ builder-direct channels.

The bottom line: We maintain our fair value estimates for DR Horton DHI ($143), Lennar LEN ($164), and Toll Brothers TOL ($140). We expect these builders will work with supply chain partners to limit the effect of tariffs on their bottom lines.

• Homebuilder stocks have sold off since late 2024 as investors worry that poor homeownership affordability, elevated inventory of new unsold homes, and tariffs will weigh on the homebuilding industry this year. However, this view ignores the long-term need for new homes in the US.
• Lennar is our top homebuilder stock pick. We don’t think the market is giving the firm enough credit for its asset-light strategy shift, which should result in stronger cash flow conversion and return on invested capital throughout the housing cycle.