Why real estate stocks took a hit as developers cheered Trump

Will Donald Trump, the born son of the real estate world, put pressure on the real estate market?

The day after Trump’s re-election, even as builders and landlords celebrated his victory in person, investors had a grim response. Real estate stocks fell 2.6% that day, making real estate the S&P 500’s worst-performing sector. DR Horton, the largest U.S. homebuilder, fell 3.8%. CBRE Group, the commercial real estate services company, fell 4%, while wireless communications infrastructure owner American Tower fell 7.7%

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Economists were concerned that a suppression of immigration would shrink the workforce in the construction industry, which is heavily dependent on foreign-born workers. “Look at the roofs and see who is doing the work,” said Anirban Basu, chief economist at Associated Builders and Contractors.

“The same goes for people who paint houses or hang drywall. It’s hard to know whether they have papers or not, but a lot of them woke up in the morning and went to the Home Depot parking lot looking for work,” he added. Basu added.

Bond traders bet there would be extended tariffs blow up the broader economy and slow the pace of rate cuts, dampening hopes for a rebound in home sales and a lifeline for office owners. Many real estate stocks have rallied, with an index of homebuilders rising Monday to recoup losses since Election Day.

“If he succeeds in implementing the policies he proposes, it will be very bad news,” said Desmond Lachman, an economist at the conservative American Enterprise Institute. “If you misread the macro, if you promote a global recession through tariffs and sow doubt in the bond market through your fiscal policy, you can deregulate or do whatever you want, but it will come back and bite you.”

Still, homebuilder confidence hit a seven-month high in November, a sentiment index shows. And property owners appear to be celebrating the return of one of their own, a businessman whose desire for a booming economy would, they expect, outweigh his less productive instincts. “I can’t say we have very good certainty,” said Jeff Holzmann, chief operating officer of RREAF Holdings, which owns apartment buildings and hotels. “What we do have is confidence. We believe this will work very well.”

The cheerful mood reflects the central tension of the period before the inauguration, when it is difficult to know if Trump’s Cabinet picks will even be approvedlet alone how they will attempt to carry out the president-elect’s campaign promises. For the real estate sector, this means anchoring hope tax cuts and deregulation. Blanket rates are “more of a negotiating tactic,” said Henry Manoucheri, CEO of apartment rental company Universe Holdings.

And, optimists say, any crackdown on immigration won’t deprive builders of construction labor. “I don’t think you’ll see police officers driving to construction sites to check IDs,” said Isaac Toledano, whose firm BH Group specializes in building luxury condos in Florida. ‘He wants interest rates to drop. He will fight inflation.”

Real estate’s affinity for the master developer goes back decades, to the days when Trump was a socialite, best-selling author and reality TV star. Jim Tobin, CEO of the National Association of Home Builders, remembers Trump impressing his members at an industry conference in 2016. “In the speech, he said, ‘Everything I’ve learned in life, I’ve learned at the foot from a house builder. my father,” Tobin recalls. “That was so powerful for our members.”

The first Trump administration delivered important victories for the sector. The Tax Cuts and Jobs Act, which Trump signed into law in 2017, created a deduction for business partnerships that benefited many real estate companies and a new way to defer and eliminate capital gains by investing in underserved communities by creating ‘ opportunity zones’. “

This time, Trump has pledged to roll back an aspect of the 2017 tax law that roiled the industry restoring deductions for state and local taxes. And unlike his Democratic opponent, Kamala Harris, he is considered unlikely to push for a national rent control law or end the similar capital gains tax favored by real estate investors.

Builders count on that too Trump will reduce regulation of the sector. Research from the homebuilders association and the National Multifamily Housing Council, another trade group, found that regulatory compliance accounts for more than 40% of the cost of building a new apartment complex and adds 24% to the cost of purchasing of a single-family home.

“I’ve been a builder all my life, I understand the problem and I will solve it,” Trump said at a campaign rally in Arizona in September. “My goal will be to reduce the cost of building a new home by 30% to 50%, and a big part of that is regulations.” It is unclear how he will do that. While he can relax federal environmental rules that extend permitting times for developers, for example, building codes are largely enforced at the local level.

The lack of concrete details did little to detract from the cheerful atmosphere at a real estate conference that Ari Pearl, founder and CEO of PPG Development, a South Florida developer, attended the day after the election. “The excitement in the air was palpable,” he says. “The biggest question I’m asked today is, ‘How can I get to the inauguration?'”