The enormous scale of the trade war initiated by President Donald Trump has the potential to upend practically every aspect of the economy, and the most vulnerable space in the real estate industry is homebuilding.
Trump has targeted a number of key trading partners for homebuilders — including Canada, Mexico, China and Vietnam. He’s either threatened or implemented tariffs on key construction inputs such as steel, aluminum, lumber, copper and semiconductors.
But so far, homebuilders have managed to weather the storm. On their respective earnings calls Tuesday, homebuilding giants D.R. Horton and PulteGroup said that tariffs have yet to heavily impact their businesses.
Stocks for D.R. Horton (+17%) and PulteGroup (+11.5%) each closed significantly higher on Tuesday, and equities of other major homebuilders jumped along with them.
“During our Q1 call, we indicated a potential impact of tariffs of approximately $5,000 per unit that could hit in the latter part of Q4,” Jim Zeumer, vice president of investor relations for PulteGroup, said on the earnings call. “At this time, we now expect any impact from tariffs in Q4 to be lower.”
D.R. Horton didn’t provide many numbers but did disclose that their home sales gross margin fell marginally from 24% in the second quarter of 2024 to 23.3% in Q2 2025. PulteGroup reported a larger decline, from 29.9% in Q2 2024 to 27% a year later.
Asked specifically about the price of Canadian lumber — which the U.S. has been in a dispute over since the 1980s — Pulte said it’s isolated from price fluctuations because only 20% to 25% of its lumber is sourced from Canada.
That’s in line with data from John Burns Research & Consulting (JBREC), which shows that roughly 30% of softwood lumber products used in homebuilding are imported, and 73% of these imports come from Canada.
But the companies and analysts say that input costs aren’t the primary drivers of their margin declines. — it’s incentives given to homebuyers. These can be things like help with closing costs and mortgage rate buydowns.
With home prices at all-time highs, mortgage rates hovering near 7% and consumer confidence waning, the housing market has been lukewarm in 2025. Existing-home sales are registering at seasonally adjusted annual rates of roughly 4 million.
New-home sales have fared better, but Pulte’s new closings dropped from 7,645 last year to 7,083 in the second quarter of 2025. Not only are builders beginning to close fewer deals, but the incentives are eating into their margins.
Pulte indicated that the cost of incentives increased to 8.7% of gross sales prices, up from 6.3% a year ago. D.R. Horton said it uses aggressive promotional rates as low as 3.99% for mortgages issued through the Federal Housing Administration (FHA), and that its average rate at closing was just over 5%. That’s roughly 1.5% below market rates.
According to reporting from Bloomberg, builders tend to offer rate buydowns in one of two forms — a permanent rate buydown or a promotional rate that increases in the second and third years before defaulting to market rates.
A recent study from Morgan Stanley concluded that permanent rate buydowns are more common among mortgages purchased by Ginnie Mae, which go to lower-income borrowers or those with lower credit scores.
And the incentives might be distorting the housing market. Morgan Stanley said that if builders weren’t offering lower mortgage rates, Ginnie Mae mortgages would be 12% cheaper. There would also be more homes on the market, and thus, lower home prices.
“Without buydowns, new home inventory would likely be even higher and new home prices would likely be even lower,” read the Morgan Stanley study, as reported by Bloomberg.
Taking the incentives and possible tariff costs together, builders are hopeful that more muted impacts from the trade war can help dampen the impact of ongoing incentives and rate buydowns. They also said that the labor supply has not been impacted by Trump’s aggressive immigration raids.
Still, the long-term outlook is cloudy due to high home prices, mortgage rates and the chaotic trade war. PulteGroup and D.R. Horton expect some level of tariff impacts in 2026, and new-home construction has started to tank as builders pull back.
While Horton and Pulte struck an optimistic tone on their earnings calls, smaller builders are increasingly pessimistic.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) — which measures builder confidence for NAHB members — posted a reading 33 in July. That’s in line with its level during some of the industry’s darkest periods, including the onset of the COVID-19 pandemic and the aftermath of the 2008 financial crisis.
English