Investing.com -- The Trump administration’s latest tariff announcement could add approximately $6,400 to the cost of building a new home, according to UBS.
The bank explained in a note this week that the impact is expected to be felt across the entire housing value chain, including component manufacturers, distributors, and homebuilders.
“If we assumed homebuilders were forced to exclusively contend with the entire $6,400 cost increase, with no ability to pass any cost onto the consumer (+1.5% pricing would offset the $ cost), the gross margin impact would be roughly -155bps on an average $415K new house,” UBS estimated.
The bank noted that raising home prices to offset the increased costs could be difficult in a market already constrained by affordability challenges.
The new tariffs apply to approximately 7% of residential construction materials, with an average incremental tariff of 22%, UBS said. This would impact homebuilders such as D. R. Horton (NYSE: DHI ), PulteGroup (NYSE: PHM ) and KB Home (NYSE: KBH ).
Additionally, the firm expects a 5% knock-on price increase for domestically sourced materials. Homebuilders surveyed in March estimated an even higher potential impact, averaging around $9,200 per home, according to UBS.
Despite the cost pressures, UBS believes the housing industry is better positioned than during previous tariff cycles.
“Component manufacturers, distributors and homebuilders were all forced to become more efficient and diversify material sourcing due to the supply shocks that coincided with COVID and the China tariffs implemented during Trump’s first term,” UBS wrote.
UBS also pointed to the sharp decline in homebuilder stock valuations, with the sector down 27% since September 2024.
“We now view risk-reward as decidedly favorable and believe the market is presenting a particularly attractive entry point for investors,” the firm said.
Given homebuilders’ historical tendency to anticipate downturns early and rebound quickly, UBS sees potential upside in the sector.