Resi Stocks are Falling Faster than the Market

Residential real estate stocks continued to fall Monday on the heels of President Donald Trump’s continued commitment to widespread tariffs.

Compass and brokerage holding firm Anywhere Real Estate each lost another roughly 2 percent off their open prices, while Douglas Elliman’s stock fell 4.8 percent and Re/Max fell over 5 percent.

Redfin, which has agreed to sell to Rocket Companies for $1.75 billion, fell even further, down 4.2 percent. Zillow, meanwhile, is down over 3 percent.

The one company in the sector that staved off the selloff last week, Rocket Companies, was also down 5 percent today.

The real estate sector mostly underperformed the market, with the S&P 500 down just .2 percent and the Nasdaq composite index flat.

Last week, Trump announced a baseline 10 percent tax on most U.S. trading partners, including a tax on Chinese goods of over 50 percent. China responded last Friday with a 34 percent tax on any U.S. goods entering its borders, and Trump has signaled he may escalate Chinese tariffs even further in response.

It’s an ill-timed shock for an industry that many expected to find its footing in 2025. Manhattan’s first-quarter residential sales were 29 percent above last year’s number as it appeared consumers adjusted to persistently high mortgage rates. Other markets saw similarly promising results in the first quarter, with South Florida seeing sales dollar volume surge this past January.

As a result, residential brokerages were poised for a banner — or better — year. Compass, for example, raised its full-year outlook in January and Anywhere expected to increase its 2025 operating EBITDA by $60 million compared to 2024.

The tariffs may have thrown all that out the window.

Cost increases begin to hit

Immediate effects of the tariffs are already being felt on the supply slide of the market.

Developers that had been quiet due to a challenging financing environment had begun plans to bring inventory online for the upcoming years. Some are now reconsidering their plans.

Michigan-based luxury developer Andrew McCarthy said that he has already received a change order increasing the cost of elevators going into a two-unit boutique condo by 14 percent. The elevators are sourced from Canada.

He’s now in talks with Christie’s International Real Estate team, which is marketing the building, to figure out price points for a May 1 sales launch.

“You’re asking yourself are we marketable, are we competitive,” he said.

Developers that had been sourcing new projects are also recalculating how those projects will pencil, if they will at all. Homebuilders have already been dealing with increased labor costs following the Trump administration’s crackdown on immigration.

“How can heads of homebuilders plan out their year, how can they forecast and plan in this environment?” Miller Samuel CEO Jonathan Miller said. “They’re going to probably rein in expansion and any notion of increasing activity.”

Miller also pointed out that existing homeowners might be loath to put their homes on the market during a period of economic turmoil, even if presented with lower rates.

The potential for fewer homes on the market will further squeeze publicly-traded residential brokerages that have already been struggling for profitability.

“Continued low inventory levels have had and could continue to have a material adverse effect on our business, financial condition and results of operations,” read Compass’ 2024 annual report.

Losing demand

On the demand side, fears of a recession loom large.

JP Morgan Chase & Co upped its odds of recession occurring this year to 60 percent. In a note to clients, the bank’s chief U.S. economist, Michael Feroli, said he expects unemployment to trend towards 5.3 percent over time.

While some analysts have pointed to already-falling mortgage rates as a potential silver lining, others remain skeptical.

“Lower rates are good for housing,” Miller said. “But if there are a lot of consumers — potential homebuyers — that lose their job, then they’re not homebuyers anymore.”

Mortgage rates dipped initially last week on expectations that the Federal Reserve might drop rates in an attempt to stave off unemployment, but Chair Jerome Powell indicated that he is more focused on the inflationary risks posed by the tariffs.

“The mortgage-backed security market has basically not given us any indication that they’re about to plummet from here,” said Melissa Cohn, regional vice president of William Raveis Mortgage.

Falling asset values have also made it harder for potential buyers to pull the trigger on a home purchase, according to Cohn.

“When you’ve lost 20 percent of the value of your stock portfolio, you’re going to be hard-pressed to want to go buy a new house and go buy new furniture,” she said.

‘Peak uncertainty’

There is one thing known to dampen real estate activity: uncertainty.

Any number of changes — a tariff rollback or the Fed changing its stance on interest rates — will lead to another calculation change for buyers and sellers. Until there’s more clarity, both sides are prone to pausing.

“We’re at peak uncertainty. When folks don’t know what’s going on, then they pause,” Miller said.

Still, Stephens analyst John Campbell remains bullish on the sector, noting that he still expects rate relief, which could spur transactions — even if they come at lower prices.

“I think what a lot of folks in the market would like to see is lower values improving affordability alongside lower rates, which get even more people off the sidelines,” he said.

But as Cohn points out, many of the prognostications made today might be completely wrong by tomorrow.

“The article that you read yesterday can be totally meaningless today or an hour later,” she said.